1. Suppose that the annual yield to maturity for the 6-month and 1-year U.S. Treasury bills is 8.0% and 7.8%, respectively. Also assume the following U.S. Treasury yield curve (the price for each issue is $100) has been estimated out to a maturity of 2 years:

Years to Maturity

Annual Yield to Maturity (BEY)

Spot Rate

Forward Rate

1.5 7.4% 7.3825%. 6.5501%

2.0 7.2% ? ?

What are the missing spot rate and forward rate?

2. A corporate bond pays a coupon rate of 10% (semi-annual payment) and has two years to maturity. Given the information from part (a), if the Z-spread for this bond is 120 basis points, what will be the value of the bond for $100 of par value?