Problem 3. U.S. Treasuries represent a significant holding in pension companys portfolio. You decide to analyze the yield curve for U.S. Treasury Notes.

a) Using the data in the following table:

i) calculate the five-year spot

ii) calculate the forward rates assuming annual compounding

U.S. TREASURY NOTE YIELD CURVE DATA Years to Par Coupon Calculated Calculated \begin{tabular}{crrr} Maturity & YTM & Spot Rates & Forward Rates \\ \hline 1 & 5.00 & 5.00 & 5.00 \\ 2 & 5.20 & 5.21 & 5.42 \\ 3 & 6.00 & 6.05 & 7.75 \\ 4 & 7.00 & 7.16 & 10.56 \\ 5 & 7.00 & & \end{tabular} U.S. TREASURY NOTE YIELD CURVE DATA Years to Par Coupon Calculated Calculated \begin{tabular}{crrr} Maturity & YTM & Spot Rates & Forward Rates \\ \hline 1 & 5.00 & 5.00 & 5.00 \\ 2 & 5.20 & 5.21 & 5.42 \\ 3 & 6.00 & 6.05 & 7.75 \\ 4 & 7.00 & 7.16 & 10.56 \\ 5 & 7.00 & & \end{tabular}