Part 1: Forwards Suppose that you are given the following term structure of zero-coupon yields (spot rates). 0.5 Maturity r 0.02 0.025 1.5 0.03 0.04 Semi-annually compounded interest rates 1. From the given spot rates, calculate the forward rates, f(0, 0.5, 1), f(0, 1, 1.5), and f(0, 1.5, 2). 2. Suppose that f(0, 1, 1.5) = 4.5%. (This should be almost 0.5 percentage points higher than what you found above.) Using f(0, 1, 1.5) and the given zero coupon yields, construct an arbitrage trading strategy to take advantage of this mispricing. Note: It may be helpful to first calculate zero-coupon bond prices for maturities of 1-year and 1.5-years. Part 1: Forwards Suppose that you are given the following term structure of zero-coupon yields (spot rates). 0.5 Maturity r 0.02 0.025 1.5 0.03 0.04 Semi-annually compounded interest rates 1. From the given spot rates, calculate the forward rates, f(0, 0.5, 1), f(0, 1, 1.5), and f(0, 1.5, 2). 2. Suppose that f(0, 1, 1.5) = 4.5%. (This should be almost 0.5 percentage points higher than what you found above.) Using f(0, 1, 1.5) and the given zero coupon yields, construct an arbitrage trading strategy to take advantage of this mispricing. Note: It may be helpful to first calculate zero-coupon bond prices for maturities of 1-year and 1.5-years