Consider the following three zero-coupon (discount) bonds:
Bond . Face Value . Time to Maturity .
1 . $1000 . One year $924.64
2 . $1000 Two years . $841.53
3 . $1000 Three years $744.59
a) Calculate the one-, two-, and three-year spot rates. (3 marks)
b) Calculate the forward rate over the second year and the forward rate over the third year. (2 marks)