Question
Year Yield to Maturity Spot Rate (%) 0.5 5.25 5.25 1.0 5.50 5.50 1.5 5.75 5.76 2.0 6.00 ? 2.5 6.25 ? 3.0 6.50 ?
Year Yield to Maturity Spot Rate (%) 0.5 5.25 5.25 1.0 5.50 5.50 1.5 5.75 5.76 2.0 6.00 ? 2.5 6.25 ? 3.0 6.50 ? 3.5 6.75 ? 4.0 7.00 ? 4.5 7.25 ? 5.0 7.50 ? a. Calculate the missing spot rates. b. What is the 6-month forward rate starting in the third year? 5. This question is related to treasury bonds term structure. a. A term structure of bond yields tells us how bond yields change over time. Explain whether you agree or disagree with the statement. b. When you observe a down-sloping yield curve, what may you say about the economy under the liquidity premium theory?
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