Suppose that the annual yield to maturity for the 6-month and 1-year Treasury bill is 4.8% and 5.2%, 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 OF MATURITY	ANNUAL YIELD TO MATURITY (BEY)
1.5	5.6%
2	6%
2.5	6.6%
3	7.2%

1)Compute the 1.5-year, 2-year, 2.5-year, and 3-year spot rates.

2)Given the spot rates computed in the previous question and the 6-month and 1-year spot rates, compute the arbitrage-free value of a 3-year Treasury security with a coupon rate of 8%.