• A 60-day T-bill is selling for $995. It will pay $1000 at maturity. What is the annualized discount rate?

• Consider three Treasury bonds:

a.1-year $1000 zero coupon bond selling for $985

b.2-year 1.5% coupon $1000 par bond selling for $995

c.3-year 2.5% coupon $1000 par bond selling for $1015

Assume the pure expectations theory for the term structure of interest rates

1)What is the expected 1-year spot rate two years from now?

2)Consider a 3-year 1.5% coupon $1000 par bond. What is the value of the bond?