An insurance company invests in two $100 par value bonds with 5% annual coupons and each maturing at par. the one year spot rate is 2.00%. the price and term of each bond is as follows:
Bond I: term 2 years, price = 103.87
Bond II: term 3 years, price = 104.32
let s₂ be the 2 year spot rate and s₃ be the 3 year spot rate implied by those bond prices. calculate s₂ s₃
A. 6.5%
B. 5.3%
C. 2.3%
