5. Yields on three Treasury notes are given as follows: Bonds and Notes Asked Asked yield 2.07% 2.55% 3.97% 4.09% 5.02% 5.13% Coupon Rate Maturity 7.250 10.750 Bid Aug. 04 110:00 110:00 Aug. 05 123:12 123:13 Aug. 10 112:00 112:01 Aug. 11 Aug. 20 Aug. 29 5.750 106:24 106:25 143:26 143:27 5.00 8.750 114:11 114:12 6.125 Strips Asked Asked yield 2.00% 2.58% 4.24% 4.47% Maturity Bid Aug. 04 96:03 96:04 Aug. 05 92: 19 92:21 Aug. 10 71:13 71:17 Aug. 11 67:06 67:08 Table 1: Treasury Prices and Yields, August 20, 2002 Maturity (yrs) Coupon rate (%) Yield to maturity (%) 5.25 5 5.50 6.00 3 6 Coupons are paid annually. What are the prices of the 1-year, 2-year, and 3-year notes? a) b) What are the spot interest rates for years 1, 2 and 3? c) What is the implied forward rate for year 2 to year 3? 128