1. If the market price of a 20-year pure discount bond with a face value of $1,000 is $214.55, what is the spot interest rate for the 20-year maturity expressed in percentage per annum?
2. Consider a 2-year euro-denominated bond that has a current market price of :970, a face value of 1,000, and an annual coupon of 5%. If the 1-year spot interest rate is 5.5%, what is the 2-year spot interest rate?
3. Consider some data drawn from Exhibit 6.5. The 1-year rates can be viewed as spot interest rates, and the 2-year rates are yields to maturity in annualized percent. The spot exchange rate is ¥132.192 >£.
U.K. Japan
1 year 1.105 0.370
2 year 1.770 0.430
What should be the 2-year forward rate to prevent arbitrage?
4. Go to the Web site of the British Bankers' Associa- tion (BBA). Find out which banks are on the panel for the dollar, the euro, the yen, and the Australian dollar.