One-, two-, and three-year maturity, default-free, zero-coupon bonds have yields to maturity of 7%, 8%, and 9%, respectively. What is the implied 1-year forward rate 1 year from today?

A) 2.07%
B) 8.03%
C) 9.01%
D) 11.12%

Forward Rate

An agreed-upon price for a financial transaction that will occur at a future date.

Zero-Coupon Bonds

Debt securities that are sold at a deep discount and do not pay periodic interest payments, but instead are redeemed at their face value at maturity.

Yields to Maturity

The total return anticipated on a bond if it is held until it matures, considering all interest payments and the principal repayment.