6. Brick House Financial offers a zero-coupon mortgage that has a 5year term where the interest rate accrues annually and is paid upon maturity along with the principle (much like a 5-year zero). You are looking to buy a new home in two years for $500,000 and will finance the entire purchase price using this special 5-year zero mortgage. Current interest rates are low and you would like to lock in the 5-year zero mortgage today instead of risking that the 5-year rate will rise significantly over the next two years. Current spot rates are: a. 2-year spot =1.50%, b. 5 -year spot =2.758 c. 7-year spot =2.5 : a) Compare the current 5-year spot rate to the 5-year forward rate 2years from now and determine the amount that the current 5-year spot rate would need to rise to make it worthwhile to lock in the rate today. In other words, compare 50,5 to r2,. b) Draw a timeline and set up the series of transactions that would enable you to lock in the 5 -year borrowing rate 2 years from today