STEP BY STEP, WITHOUT EXCEL IS BETTER

3) Suppose that the annual yield to maturity for the 6-month and 1-year Treasury bill is 3.4% and 4.2%, respectively. These yields represent the 6-month and 1-year spot rates. Also assume the following Treasury yield curve (i.e., the price for each issue is $100) has been estimated for 6-month periods out to a maturity of 3 years: Years to Maturity 1.50 2 2.50 3 Annual Yield to Maturity (BEY) 5.00% 5.40% 5.80% 6.80% a) Compute the 1.5-year, 2-year, 2.5-year, and 3-year spot rates on a bond equivalent yield basis. b) Given these spot rates, compute the arbitrage-free value of a 3-year Treasury security that pays semi-annual coupons with a coupon rate of 8%. 3) Suppose that the annual yield to maturity for the 6-month and 1-year Treasury bill is 3.4% and 4.2%, respectively. These yields represent the 6-month and 1-year spot rates. Also assume the following Treasury yield curve (i.e., the price for each issue is $100) has been estimated for 6-month periods out to a maturity of 3 years: Years to Maturity 1.50 2 2.50 3 Annual Yield to Maturity (BEY) 5.00% 5.40% 5.80% 6.80% a) Compute the 1.5-year, 2-year, 2.5-year, and 3-year spot rates on a bond equivalent yield basis. b) Given these spot rates, compute the arbitrage-free value of a 3-year Treasury security that pays semi-annual coupons with a coupon rate of 8%