Determine the forward rate of interest

Reference no: EM13973537

The (zero coupon) U.S. Treasury strip maturing in exactly five years is selling at a price of 72.627 percent of par (face) value. The (zero coupon) U.S. Treasury strip maturing in exactly three years is selling at a price of 83.748 percent of par value.

a. Determine the semiannually compounded yield for each of these zero coupon bonds.

b. Determine the equivalent effective annual yield for each of these zero coupon bonds.

c. Use the effective annual yields from part (b) to determine the forward rate of interest for a two-year period beginning in three years (following the maturity of the three-year zero coupon bond).

Reference no: EM13973537

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