Always Use Spot Rate for Discounting? face, general, valuation, following

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105. An analyst has gathered the following information:
3-Year Treasury Rate: 3.75% (constant across all 3 years)

Treasury Spot Rate
year 1 3.00%
year 2 3.50%
year 3 4.00%

Based on the arbitrage-free valuation approach, a $1,000 face value bond that
pays a 5 percent annual coupon and matures in 3 years has a current market value
closest to:

A. $1,027.75.
B. $1,028.67.
C. $1,034.85.

Correct answer is B...

As a general rule, are we supposed to use the treasury spot rates whenever calculating / discounting a security? What is wrong with using the 3 year treasury rate of 3.75% for all 3 years?