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You observe the yields of the following Treasury securities at below (all yields are shown on a bond-equivalent basis). All the securities maturing from 1.5
You observe the yields of the following Treasury securities at below (all yields are shown on a bond-equivalent basis). All the securities maturing from 1.5 years on are selling at par. The 0.5 and 1.0-year securities are zero-coupon instruments.
(a) What should the price of a 6% 5.5-year Treasury security be?
(b) What is the six-month forward rate starting in the seventh year?
Year (Period) 0.5 (1) 1.0 (2) 1.5 (3) 2.0 (4) 2.5 (5) 3.0 (6) 3.5 (7) 4.0 (8) 4.5 (9) 5.0 (10) Yield to Maturity (%) 5.25 5.50 5.75 6.00 6.25 6.50 6.75 7.00 7.25 7.50 Spot Rate (%) 5.25 5.50 5.76 6.02 6.28 6.55 6.82 7.10 7.38 7.67 Year (Period) 5.5 (11) 6.0 (12) 6.5 (13) 7.0 (14) 7.5 (15) 8.0 (16) 8.5 (17) 9.0 (18) 9.5 (19) 10.00 (20) Yield to Maturity (%) 7.75 8.00 8.25 8.50 8.75 9.00 9.25 9.50 9.75 10.00 Spot Rate % 7.97 8.27 8.59 8.92 9.25 9.61 9.97 10.36 10.77 11.20
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