Question: Consider a 2-year bond whose par value is $1,000 and coupon rate is 6% per year, payable semi-annually. The bond's current price is such that

Consider a 2-year bond whose par value is $1,000 and coupon

Consider a 2-year bond whose par value is $1,000 and coupon rate is 6% per year, payable semi-annually. The bond's current price is such that its yield is 5.50% p.a., continuous compounding. Suppose also that the current term structure of spot interest rates is as follows: Term (years). Rate (% p.a., continuous compounding) 0.50 4.445% 1.00 4.740% 1.50 5.060% What is the forward interest rate for a lending/borrowing transaction that starts in 1.50 years and ends in 2 years (i.e., r(1.5,2))

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