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  3. you are given information about the following four

You are given information about the following four bonds, each of which has a face...

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Finance

You are given information about the following four bonds, each of which has a face value of $100:

  1. A one year zero-coupon bond with a YTM of 2%
  2. A two year bond with a coupon rate of 10% and a YTM of 4%
  3. A three year zero-coupon bond with a YTM of 6%
  4. A four year bond with a coupon rate of 12% and a YTM of 7%

What is the forward rate in year four? That is, what is the market implied interest rate for a one year investment from the end of year three to the end of year four. Assume that coupons are paid, and interest is compounded, on an annual basis, and express your final answer as an annual interest rate (e.g., 10% per annum instead of 5% per six months)

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