A bond is said to be selling at par if its current price equals its face value. Currently, the 1-year, 2-year, and 3-year coupon-paying Treasuries selling at par have annual coupon rates of 2%, 4%, and 6%, respectively. Assume all coupons are paid at the end of the year.

(a) What is the yield-to-maturity on the 1-year, 2-year, and 3-year coupon-paying Treasuries, respectively?

(b) Now consider the 1-year, 2-year, and 3-year zero-coupon Treasuries. What is the yield-to-maturity on the 1-year, 2-year, and 3-year zero-coupon bonds, respectively? (Keep your calculations to 4 decimal digits).

(c) What is the 1-year and 2-year ahead 1-year forward rate?

(d) Graph the following yield curves in the same diagram:

i. The yield curve obtained from the par- coupon-paying treasuries

ii. The yield curve obtained from the zero-coupon treasuries

iii. The forward rate curve (forward rates against horizon)

(e) Comment on the relative position of the three curves.