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 are correct.

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 are correct.
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Question

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 7