Exercise 5.2

An analyst observes that the current 6-month T-Bill rate is 8 percent and the one-year T-Bill rate is 9 percent. There is an existing 1.5-year, 9 percent semi-annual coupon bond selling for $990. What is the annualized 1.5-year spot rate?

SHOW WORK

A.) 4.5%

B.) 4.9%

C.) 9.0%

D.) 9.8%

E.) Other....._______