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The prices of zero-coupon bonds with various maturities are given in the following table. Suppose that you want to construct a 2-year maturity forward loan commencing in 3 years. The face value of each bond is $1.000. Maturity (Years) 1 2 3 4 Price $ 974.68 903.39 842.92 783.ee 669.92 a. Suppose that you buy today one 3-year maturity zero-coupon bond. How many 5-year maturity zeros would you have to sell to make your Initial cash flow equal to zero? (Round your answer to 4 decimal places.) Answer is complete and correct. 5-year maturity 12582 zeros b. What are the cash flows on this strategy in each year? (Negative value should be indicated by a minus sign. Leave cell blank if there is no effect. Round your answers to 2 decimal places.) Answer is complete but not entirely correct. Time Cash Flow 0 $ 3 $ 1.000.00 5 $ 1.258.23 c. What is the effective 2-year Interest rate on the effective 3-year-ahead forward loan? (Round your answer to 2 decimal places.) Answer is not complete. 2-year interest rate % d. Confirm that the effective 2-year forward Interest rate equals (1-fa) *(1 - FE] -1. You therefore can Interpret the 2-year loan rate as a 2-year forward rate for the last two years. Alternatively, show that the effective 2-year forward rate equals (Round your answer to 2 decimal places. (1 + y) (1 + y) 1 + 2-year loan rate %

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