Suppose that the prices of zero-coupon bonds with variousmaturities are given in the following table. The face value of eachbond is $1,000.
| Maturity (Years) | Price |
| 1 | $ | 925.93 | |
| 2 | | 853.39 | |
| 3 | | 782.92 | |
| 4 | | 715.00 | |
| 5 | | 650.00 | |
|
a. Calculate the forward rate of interest foreach year. (Round your answers to 2 decimalplaces.)
b. How could you construct a 1-year forwardloan beginning in year 3? (Round your Rate of syntheticloan answer to 1 decimal place.)
| |
| Face Value $ | |
| Rate on synthetic loan | |
c. How could you construct a 1-year forwardloan beginning in year 4?
| |
Face Value | |
| Rate on synthetic loan | |
