You have estimated spot rates as follows:

(a) What are the discount factors for each date (that is, the present value of $1 paid in year t)?

(b) What are the forward rates for each period?

(c) Calculate the PV of the following Treasury notes:

(i) 5 percent, two-year note.

(ii) 5 percent, five-year note.

(iii). 10 percent, five-year note.

(d) Explain intuitively why the yield to maturity on the 10 percent bond is less than that on the 5 percent bond.

(e) What should be the yield to maturity on a five-year zero-coupon bond?

(f) Show that the correct yield to maturity on a five-year annuity is 5.75 percent.

(g) Explain intuitively why the yield on the five-year Treasury notes described in part (c) must lie between the yield on a five-year zero-coupon bond and a five-year annuity