1. The following is a depiction of the current yield curve for constant maturity US treasuries:

Rates in Percentage points

Date 1 Yr 2 Yr 3 Yr 5 Yr 7 Yr

09/23/16 0.60 0.77 0.90 1.16 1.44

Using the rates above calculate the following forward rates:

1) The one year rate one year from September 23, 2016.

2) The one-year rate two years from September 23, 2016.

3) The two-year rate three years from September 23, 2016.

4) The two-year rate five years from September 23, 2016.

5) The three-year rate two years from September 23, 2016.

2. Bond Calculations:

1) Avon Products Note 06.5% Coupon: 6.500%Maturity: 5 yearsRating: Moodys: BAA3Price: $ 108.093Calculate: Yield to maturity.

S&P: BBB-

2) SAFEWAY INC SR NT 5.00000% Coupon: 5.000%Maturity: 5 years

Rating: MoodysBAA3 S&P: BBB Price: $ 101.180

a) Calculate: Yield to maturity.

b) Suppose the bond is callable in 3 years at $ 110. Using the price above find the yield to call. (Hint: use the FV to be $110 instead of $ 100. And the time to maturity 3 years instead of 5 years.