U.S. Treasuries represent a significant holding in Laurens pension portfolio. You decide to analyze the yield curve

U.S. Treasuries represent a significant holding in Lauren’s pension portfolio. You decide to analyze the yield curve for U.S. Treasury Notes.

a. Using the data in the following table, calculate the five-year spot and forward rates, assuming annual compounding. Show calculations.

b. Define and describe each of the following three concepts:
• Yield to maturity
• Spot rate
• Forward rate
Explain how these three concepts are related.
You are considering the purchase of a zero coupon U.S. Treasury Note with four years to maturity.
c. Based on the preceding yield curve analysis, calculate both the expected yield to maturity and the price for the security. Showcalculations.

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U.S. TREASURY NOTE YIELD CURVE DATA Par Coupon Yield to Maturity 5.00 5.20 6.00 7.00 7.00 Years to Maturity Calculated Forward Rates Calculated Spot Rates 5.00 5.21 6.05 7.16 5.00 5.42 7.75 10.56 4