The spot rates of interest for five U.S. Treasury Securities are shown in the following exhibit. Assume

Question:

The spot rates of interest for five U.S. Treasury Securities are shown in the following exhibit. Assume all securities pay interest annually.
Spot Rates of Interest
Term to Spot Rate of Interest
1 year ..............13.00%
2 ................12.00
3 ...................11.00
4 ................10.00
5 .................9.00

a. Compute the 2-year implied forward rate for a deferred loan beginning in 3 years.
b. Compute the price of a 5-year annual-pay Treasury security with a rate of 9% by using the information in the exhibit.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...