a) using the two zero coupon bonds, compute the forward rate that is applied for the period from the end of year 1 to the end of year2.

b) suppose that we ne need the above coupon bond for your cash requirements. However, due to some reasons, we cannot buy the coupon bond. Therefore, instead of the coupon bond, we decide to buy 1 yr and 2 yr coupon bonds. if this alternative investment has the same cash flows as the coupon bond, how many bonds we need to buy? what is the cost for this alternative investment?

6. In the bond market, we find the following Treasury bonds Bond price $975 Maturity 2 years Face value $1,000 Coupon rate (annual) 10% $98 1 year $100 0% $96 2 years $100 0%