1. Gotham City has been planning to develop a new warning system to make Batman aware of danger. The installation of the system costs more than what their budget allows so the mayor decide to issue a 15-year bond to finance the project. The bonds have a face value of $1,000 and it promises a coupon rate of 6.8% which will be paid quarterly to the bond holders.

a. Calculate the price you have to pay to purchase the bond if

i. The Yield to Maturity (YTM) is 6% (annually)

ii. The Yield to Maturity (YTM) is 8.4% (annually)

b. Lets assume you would like to buy 200 bonds issued by the Gotham City. If the YTM is 7.6% and the coupon rate is 6.8%, calculate how much more you have to pay when you purchase a bond which makes annual coupon payments rather than quarterly.

2. Consider the following three zero-coupon (discount) bonds:

Bond	Face Value	Time to Maturity	Market Price
1	$1,000	One year	$924.64
2	$1,000	Two years	$841.53
3	$1,000	Three years	$744.59

a) Calculate the one-, two-, and three-year spot rates.

b) Calculate the forward rate over the second year and the forward rate over the third year.