*JUST PART C IS REQUIRED*

Use the yield curve in the table below to answer the following question. Assume annual coupons and round year fractions for your calculations.

Tenor Swap Rate

1Y 4.00%

2Y 3.90%

3Y 3.85%

4Y 3.80%

5Y 3.70%

a)Bootstrap the yield curve to calculate discount factors and continuous zero rates for each of the 5 years

b)Use the yield curve to value a 5 year bond with an annual coupon of 15% that has a 2% spread over the zero rate.

c)Consider three investors who have 2, 4 and 5 year investment horizons respectively. After each investing in the bond, interest rates rise by 1%. By calculating the bond's duration, explain the expected impact on each investor. Note any assumptions you are making.