(Solved): The prices of zero-coupon bonds with various maturities are given in the following table. Suppose t ...

The prices of zero-coupon bonds with various maturities are given in the following table. Suppose that you want to construct a 2-year maturity forward loan commencing in 3 years. The face value of each bond is $$\$1,000$$. a. Suppose that you buy today one 3-year maturity zero-coupon bond with face value $$\$1,000$$. How many 5 -year maturity zeros would you have to sell to make your initial cash flow equal to zero (specifically, what must be the total face value of those 5 -year zeros)? b. What are the cash flows on this strategy in each year? c. What is the effective 2 -year interest rate on the effective 3 -year-ahead forward ioan? d. Confirm that the effective 2 -year forward interest ratê equals $$\left(1+f_4\right)\times \left(1+f_5\right)?1$$. You therefore can interpret the 2-year loan rate as a 2-year forward rate for the last two years. Alternatively, show that the effective 2-year forward rate equals $$\frac{{\left(1+y_5\right)}^5}{{\left(1+y_3\right)}^3}?1$$ Complete this question by entering your answers in the tabs below. a. Suppose that you buy today one 3-year maturity zero-coupon bond with face value $$\$1,000$$. How many 5-year maturity zeros would you have to sell to make your initial cash flow equal to zero (specifically, what must be the total face value of those 5 -year zeros)? (Round your answer to 4 decimal places.) c. What is the effective 2-year interest rate on the effective 3-year-ahead forward loan? (Round your answer to 2 decimal places.) d. Confirm that the effective 2 -year forward interest rate equals $$\left(1+f_4\right)\times \left(1+f_5\right)?1$$. You therefore can interpret the 2 -year loan rate as a 2 -year forward rate for the last two years. Alternatively, show that the effective 2 -year forward rate equals (Round your answer to 2 decimal places.)