You observe the yields of the following Treasury securities (all yields are shown on a bond-equivalent basis);

All the securities maturing from 1.5 years on are selling at par. The 0.5- and 1.0-year securities are zero-coupon instruments.

a. Calculate the missing spot rates.

b. What should the price of a 6% six-year Treasury security be?

c. What is the six-month forward rate start- ing in the sixth year?AppendixLO1 

Transcribed Image Text:

Year Yield to Maturity (%) Spot Rate (%) Year Yield to Maturity (%) Spot Rate (%) 0.5 5.25 5.25 5.5 7.75 7.97 1.0 5.50 5.50 6.0 8.00 8.27 1.5 5.75 5.76 6.5 8.25 8.59 2.0 6.00 ? 7.0 8.50 8.92 2.5 6.25 ? 7.5 8.75 9.25 3.0 6.50 ? 8.0 9.00 9.61 3.5 6.75 ? 8.5 9.25 9.97 4.0 7.00 4.5 7.25 5.0 7.50 222 2 9.0 9.50 10.36 ? 9.5 9.75 10.77 10.0 10.00 11.20