U.S. Treasuries represent a significant holding in many pension portfolios. You decide to analyze the yield curve for U.S. Treasury notes.

1. Using the data in the table below, calculate the 5-year spot and forward rates assuming annual compounding. Show your calculations.

U.S. Treasury Note Yield Curve Data

YearstoMaturity	Par Coupon Yield to Maturity	CalculatedSpot Rates	Calculated ForwardRates
1	5.00	5.00	5.00
2	5.20	5.21	5.42
3	6.00	6.05	7.75
4	7.00	7.16	10.56
5	7.00	?	?

1. Define and describe each of the following three concepts:
   1. i. Short rate
   2. ii. Spot rate
   3. iii. Forward rate

Explain how these concepts are related.

1. You are considering the purchase of a zero-coupon U.S. Treasury note with four years to maturity. On the basis of the above yield-curve analysis, calculate both the expected yield to maturity and the price for the security. Show your calculations.