3.There are three zero coupon bonds. Their prices are:1 year =$920; 2 year =$840; 3 year...

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3.There are three zero coupon bonds. Their prices are:1 year=$920; 2 year =$840; 3 year =$750.
Three zero coupon bonds have the face value of 1000.
To calculate YTM
Year 1
Face value = Price (1+ YTM)
1000 = 920 ( 1+ YTM)
1+ YTM = 1000/920
YTM = 1.0896-1
YTM = 0.0869 = 8.70%
Year 2
Face value = Price (1+ YTM)²
1000 = 840 ( 1+ YTM)²
(1+ YTM)² = 1000/840
(1+YTM)² = 1.1905
1+ YTM = 1.0911
YTM = 1.0911-1
YTM = 0.0911 = 9.11%
Year 3
Face value = Price (1+ YTM)³
1000 = 750 ( 1+ YTM)³
(1+ YTM)³ = 1000/750
(1+YTM)^{3 =} 1.333333
1+ YTM = 1.1006
YTM = 1.1006-1
= 0.1006
= 10.06%
The answers are in the brackets. I want to know theprocess to get the answers.
*Question** b. What are the 1 year forward rate atthe end of year 1, and the annualized forward rate between end ofyears 1 and 3? [answers: 9.52%, and 10.75%]

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One Year forward rate at the end of one year If you are investing for two years an amount of Dollar 100 You can 1Invest directly for two years at 911 2 Invest now for one year at 870 now and invest for one more year at one year See Answer

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