(Answered) The following table shows yields to maturity of zero-coupon

Finance

The following table shows yields to maturity of zero-coupon Treasury securities.

Term to Maturity (Years)	Yield to Maturity (%)
1	3.50%
2	4.50
3	5.00
4	5.50
5	6.00
10	6.60

a. Calculate the forward 1-year rate of interest for year 3.

b. Describe the conditions under which the calculated forward rate would be an unbiased estimate of the 1-year spot rate of interest for that year.

c. Assume that a few months earlier, the forward 1-year rate of interest for that year had been significantly higher than it is now. What factors could account for the decline in the forward rate?

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