Question: From the Treasury strip yield curve, the current required yields on one- and two-year Treasuries are i 1 = 4.65 percent and i 2 =

From the Treasury strip yield curve, the current required yields on one- and two-year Treasuries are i₁ = 4.65 percent and i₂ = 5.50 percent, respectively. Further, the current yield curve indicates that appropriate one-year discount bonds are yielding k₁ = 8.5 percent, and two-year bonds are yielding k₂ = 10.25 percent.

(1) Calculate the one-year forward rate on the Treasuries.

(2) Calculate the one-year forward rate on the corporate bond.

(3) Using the current and forward one-year rates, calculate the marginal probability of repayment on the corporate bond in year 1.

(4) Using the current and forward one-year rates, calculate the marginal probability of repayment on the corporate bond in year 2.

(5) Calculate the cumulative probability of default on the corporate bond over the next two years.

Convert your answer to percentage format. Enter your answer rounded to 2 decimals, and without any units. So, for example, if your answer is 3.4568%, then just enter 3.46.

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