Note: The bonds have a $100 face value. The interest rates are annual interest rates with semi-annual compounding and the coupon rates are also annual rates which are paid semi-annually.

Question: The forward rates are specified for the next two years: r(0.5)=5%, r(1)=6%, r(1.5)=7%, r(2)=8%.

Part a) What is the 2 year spot rate?

Part b) What is the price of a 8% coupon bond that is maturing in 2 years?

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