jacksparrow

c is very doable guys, i was gona prepare an example, but my math skills failed me

go get 2.5 spot rate, you need to have the 1.5 and the 2 spot rates

after that i assume it is straight forward for you....

here is how you get the 1.5 and 2 spot rates

you get two bonds of diff coupon that expire in 2 years

price Bond A=
(coupon a)/(1+six month spot rate)+
(coupon a)/(1+ one year spot)+
(coupon a)/(1+ one and half spot rate)+
(coupon a+par a)/(1+ two year spot rate)

price Bond B=
(coupon b)/(1+six month spot rate)+
(coupon b)/(1+ one year spot)+
(coupon b)/(1+ one and half spot rate)+
(coupon b+par b)/(1+ two year spot rate)

in these two equations your online unknowns are the (two year spot rate), and (one and half year spot rate). you rearrange the first equation to where you get

(one and the half year spot rate)= (two and half year spot rate) pluus whatever devided by whatever

ie you write the one and half year spot in term of the two and the half year spot

you plug it into the second equation and now you have one unknown

you solve for this unknown

you plug in the value in the first rearranged equation and get the second unknown

so now you got the 1.5 and the 2 year spots, you use them to get the 2.5 year spot

solving this equation should be easy, unfortunatly i was playing tetris on the ti 84 plus calculator in high school algebra, but any high school kid should be able to do it