A 3-year treasury note has a face value of $1000 and annual coupon of 8%. The 1-year spot rate is r1 = 2%, and the 1-year forward rates for the next two years are r2 = 4% and r3 = 5%. (suppose coupons are distributed at the end of each year and rates are compounded discretely).
(a) Compute the price of the T-note.
(b) Calculate the YTM of the T-note.
(c) Calculate the 2- and 3-year spot interest rates.