a. Assume that the annual) spot rates for maturities up to 4 years, given on a semi-annual basis, are given in the table below: Spot rate Maturity (years) 0.5 2.5% 1 2.8% 1.5 2.7% 2 3.0% 2.5 3.3% 3 3.5% 3.5 3.6% 4 3.6% Suppose that a Government bond expiring 4.5 years from now has a coupon rate of 6.0% and is currently quoted at 105 with a 100 nominal. Recover the 4.5-year spot rate. [30%] b. A customer wants to buy 23m against dollars 3-month forward from a bank. The 3-month sterling interest rate is 1.1%, the 3-month dollar interest rate is 1.4%. The spot bid rate is 1.3685 $/, while the spot ask/offer is 1.3763 $/. Calculate the 3-months forward exchange rate applied by the bank to the customer on the assumption that the covered interest rate parity holds. [15%]