Question: Consider the following information in Table 3, on 3 default-risk free bonds with annual coupon payments and face value of $1000. Table 3 Bond Coupon

Consider the following information in Table 3, on 3 default-risk free bonds with annual coupon payments and face value of $1000.

Table 3

Bond Coupon rate (%) Time to maturity (years) Yield to maturity (%)
A 4 1 5
B 6.5 2 6
C 8 3 8

a. Determine the prices of bonds A, B and C.

b. Determine the current term structure if spot interest rates and briefly comment on the shape of the term structure.

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