The yields to maturity on five zero coupon bonds are given below:
Years to Maturity: 1 year (yield of 12%), 2 years (yield of 14%), 3 years (yield of 15%), 4 years (yield of 15.5%), and 5 years (yield of 15.7%)
(a) What is the implied forward rate for the third year?
(b) What is the yield to maturity of a 5-year annual coupon bond with a coupon
rate of 5%. Also, find the yield to maturity of a 5-year annual coupon bond
with a coupon rate of 10%. Which one is higher, why?