In practice, bond prices are never available at conveniently spaced intervals. Some interpolation scheme is called for. However, by making an assumption of constant forward rates between non-standard maturities, we can develop a spot rate curve even for unequal time intervals. In this question, you will undertake a simple exercise of this type. 

You are given the following discount bond prices at times t:

All compounding and discounting are continuous. 

(a) Assuming that forward rates are constant between these dates, find these forward rates. 

(b) Price a two-year $100 face value bond that pays 10% p.a. semiannually.  

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t 0.70 1.32 2.11 Discount Bond Price 0.9754 0.9256 0.8777