Given the yield on a 3 year zero-coupon bond is 7.2% and forward rates of 6.1% in year 1 and 6.9% in year 2, what must be the forward rate in year 3
A)8.4%
B)8.6%
C)8.1%
D)8.9%
E)None of the options

Name: Given the yield on a 3 year zero-coupon bond is 7.2% and forward rates of 6.1% in year 1 and 6.9% in year 2, what must be the forward rate in year 3 A)8.4% B)8.6% C)8.1% D)8.9% E)None of the options
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Quizplus · Accepted Answer

f₃ = (1.072)³/[(1.061) (1.069)] - 1 = 8.6%.

Given the Yield on a 3 Year Zero-Coupon Bond Is