15.

a. Using the theoretical spot rates in table 16.2, calculate the theoretical value of a 7%, six-year Treasury bond.

b. Using the theoretical spot rates in table 16.2, calculate the two-year forward rate four years from now.

c. Verify your answer to part b by assuming an investment of $100 is invested for six years.

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Year Yield to Maturity (%) Spot Rate (%) 0.5 5.25 5.25 1.0 5.50 5.50 1.5 5.75 5.76 2.0 6.00 ? 2.5 6.25 ? 3.0 6.50 3.5 6.75 4.0 7.00 4.5 7.25 5.0 7.50 22222 ? ? ? ? ? 5.5 7.75 7.97 6.0 8.00 8.27 6.5 8.25 8.59 7.0 8.50 8.92 7.5 8.75 9.25 8.0 9.00 9.61 8.5 9.25 9.97 9.0 9.50 10.36 9.5 9.75 10.77 10.0 10.00 11.20