Based on the risk-free yield curve given below and assuming semi-annual compounding using a 30/360 day count convention (as used in class) calculate: 1) the discount factors (6 decimal places)

2) the zero-coupon yield curve (spot rate curve) (6 decimal places)

3) All implied forward rates contained within the yield curve (6 decimal places)

4) Suppose you are quoted a 6-month forward rate starting 6 months from today (0.5 F*1.0) that is 10 basis points (0.10%) higher than the theoretical 6-month forward rate starting 6 months from today (0.5 F1.0) that you calculated in part 3. Create an investment strategy using an arbitrage table, to exploit this arbitrage opportunity.

5) Suppose you are quoted a 6-month forward rate starting 6 months from today (0.5 F*1.0) that is 15 basis points (0.15%) lower than the theoretical 6-month forward rate starting 6 months from today (0.5 F1.0) that you calculated in part 3. Create an investment strategy using an arbitrage/payoff table, to exploit this arbitrage opportunity.

YIELD CURVE DISCOUNT SPOT RATE FACTORS CURVE 6MO (dt) LOR] FWD RATES 1 YR FWD RATES 1.5 YR FWD RATES 2 YR FWD RATES 2.5 YR FWD RATES 3.0 YR FWD RATES 3.5 YR FWD RATES 4.0 YR FWD RATES 4.5 YR FWD RATES t 6-MO. (in yrs) Period 0 0 0.50 1 1.00 2 1.50 3 2.00 4 2.50 5 3.00 6 3,50 7 4.00 8 4.50 9 5.00 10 4.1600% 4.5700% 4.8500% 5.2600% 5.4500% 5.6200% 62000 5.9700% 6.0900% 6.4400% 6.7100% YIELD CURVE DISCOUNT SPOT RATE FACTORS CURVE 6MO (dt) LOR] FWD RATES 1 YR FWD RATES 1.5 YR FWD RATES 2 YR FWD RATES 2.5 YR FWD RATES 3.0 YR FWD RATES 3.5 YR FWD RATES 4.0 YR FWD RATES 4.5 YR FWD RATES t 6-MO. (in yrs) Period 0 0 0.50 1 1.00 2 1.50 3 2.00 4 2.50 5 3.00 6 3,50 7 4.00 8 4.50 9 5.00 10 4.1600% 4.5700% 4.8500% 5.2600% 5.4500% 5.6200% 62000 5.9700% 6.0900% 6.4400% 6.7100%