Consider the following information on a yield curve (where t = 0 is now) Ti

Consider the following information on a yield curve (where t = 0 is now)

Time (in years) to Maturity (TTM) Effective Annual Rate

1 .01

2 .015

3 .02

4 .0225

5 .0235

Part 1: Using this yield curve calculate the present value of the following payment streams:

a. $100 at t = 1

b. $100 at t = 2

c. $100 at t = 3

d. $100 at t = 4

e. $100 at t = 5

f. $100 at t = 1 and $100 at t = 4

g. $200 at t = 2 and $200 at t = 5

Part 2: Also using the above yield curve calculate the forward rate for the one-year yield next year at t = 1. If you take your answer to b above
divided by your answer to a above and then subtract 1 do you get the same answer?

Part 3: Consider the following two strategies for getting a return over three years:

Strategy 1: Invest for three years at the three year rate;

Strategy 2: invest at the two-year rate for two years and then roll over into the one-year rate in two years.

You can calculate a forward rate for the one-year rate in two years (at t = 2) by considering the one-year rate in two years that would make you indifferent
between Strategy 1 and Strategy 2. What is that forward rate?