Question: Exercise 3 Suppose the bonds A, B, C. and D are trading in the market at the market prices shown below. Assume that coupons are

Exercise 3 Suppose the bonds A, B, C. and D are trading in the market at the market prices shown below. Assume that coupons are paid semiannually and that all four bonds have $100 face value. 1. Bootstrap zerocoupon yields for maturities 0105, 1, 1.5. and 2 years. 2. Calculate the discount factors that the zerocoupon yields imply. Do you see any potential problems? Why? Bond Coupon Timeto-maturity Price A 5% 0 . 5 101 . 99 B 3% 1 101 .49 C 4% 1 . 5 102 . 96 D 6% 2 109 .82

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