Measuring term structure* The following table shows the prices of a sample of Narnian Treasury strips in December

2018. Each strip makes a single payment of $1,000 at maturity.

a. Calculate the annually compounded, spot interest rate for each year.

b. Is the term structure upward- or downward-sloping or flat?

c. Would you expect the yield on a coupon bond maturing in December 2023 to be higher or lower than the yield on

the 2020 strip?

Maturity

Price (%)

December 2020 90.703%

December 2021 85.892

December 2022 81.491

December 2023 77.243