Question: Given - 1-year par rate =3.2% - 2-year par rate =5.2% - 3-year par rate =6.1% - 4-year par rate =7.5% Suppose the bond price

Given - 1-year par rate =3.2% - 2-year par rate =5.2%

Given - 1-year par rate =3.2% - 2-year par rate =5.2% - 3-year par rate =6.1% - 4-year par rate =7.5% Suppose the bond price and par values are both K1000, a) Compute the 1-year, 2-year, 3-year and 4-year spot rates using bootstrapping process. (12 marks) b) Compute the 1-year forward rates, starting from today, 1 year from now, 2 years from now and 3-years from now. (8 marks)

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