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Specific assignment instructions:
All interest rates are annual interest rates with semi-annual compounding. All coupon rates are annual rates paid semi-annually. All bonds have a $100 face value assume that forward rates for the next 2 years are given by: r(0.5)=6%, r(1)=7%; r(1.5)=8% and r(2)=9%. In addition, the price of a 7% coupon bond maturing 2.5 years from now is equal to $101 and the price of a 6% coupon bond maturing 3 years from now is equal to $99.
a) Find the 2.5-year forward rate r(2.5). Keep at least 6 decimal digits while doing calculations and reporting the answer.
b) Find the 3 year forward rate r(3). Keep at least 6 decimal digits while doing calculations and reporting the answer.
c) Find the 2.5-year spot rate ^(2.5). Keep at least 6 decimal digits while doing calculations and reporting the answer.
d) Find the 3-year forward rate ^(3). Keep at least 6 decimal digits while doing calculations and reporting the answer.
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