Question: Assuming in December of 2014, the term structure of Treasury securities included the following rates:

Security           Annualized Yield (%)

3-month bill               4.50

6-month bill               4.57

1-year note               4.52

2-year note               4.51

3-year note               4.48

a) The six-month annualized yield expected in the second half of year 2015 (forward rate for 6-month bill in June 2015)

b) The one-year expected yield for year 2017 (forward rate for 1-year note in December 2016)

c) Suppose the 8-year spot interest rate is 8 percent and the 3-year spot rate is 4 percent. What is the implied forward rate on a 5-year bond originating 3 years from now?

d) Suppose the 5-year spot interest rate is 6 percent. Under the expectation hypothesis the forward rate on a 3-year bond originating 2 years from now was estimated. The estimated forward rate is 5.5 percent. What is the 2 -year bond spot rate?