Consider Two Annual Coupon Bonds,each with Two Years to Maturity

Consider two annual coupon bonds,each with two years to maturity.Bond A has a 7% coupon and a price of $1,000.62.Bond B has a 10% coupon and sells for $1,055.12.Find the two one-period forward rates that must hold for these bonds.

A) 6.97%,6.95%
B) 6.95%,6.95%
C) 6.97%,6.97%
D) 6.08%,7.92%
E) 7.00%,10.00%
1,000.62 = d₁X 70 + d₂ X 1,070;
1,055.12 = d₁X 100 + d₂ X 1,100;
2620.36 = 3000 d₂;

Correct Answer:

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