2. Bond Market (Synthetic Zero-Coupon Bond and Floating Rate Bond) There are three bonds in the...

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2. Bond Market (Synthetic Zero-Coupon Bond and Floating Rate Bond) There are three bonds in the market as follows: Coupon Face Value Price Bond Maturity (Paid Annually) 1 4% 10 $1,000 700 2 4%+s% 10 $1,000 800 3 8%-5% 10 $1,000 900 where s% is the short rate. a) (10 points) Derive the price of a zero coupon bond with 10 years to maturity and $1,000 face value. b) (10 points) Derive the price of floating rate bond (coupon paid annually) with 10 years to maturity and $1,000 face value. 2. Bond Market (Synthetic Zero-Coupon Bond and Floating Rate Bond) There are three bonds in the market as follows: Coupon Face Value Price Bond Maturity (Paid Annually) 1 4% 10 $1,000 700 2 4%+s% 10 $1,000 800 3 8%-5% 10 $1,000 900 where s% is the short rate. a) (10 points) Derive the price of a zero coupon bond with 10 years to maturity and $1,000 face value. b) (10 points) Derive the price of floating rate bond (coupon paid annually) with 10 years to maturity and $1,000 face value.