Pat is considering buying a "Kool" bond that will generate $$900,$$$1,300,$$$1,300$ and

$$1,300$ for years $1-4$ respectively. The current market rates on a $1,2,3,4$ year zero

coupon bonds are $2\mathrm{.}525\%,3\mathrm{.}525\%,4\mathrm{.}125\%,4\mathrm{.}725\%,$ respectively. The zero$-$coupon

bonds have a par$-$value of $$1,000.$

What is the value of the following bonds:

Assuming the risk level of the Kool bond is similar to that of the zero$-$coupon bonds,

what price should Pat be willing to pay for the bond?

Pat wants to create a portfolio of zero$-$coupon bonds that has the same payoff as the

Kool bond. How many zero$-$coupon bonds must Pat buy to create the portfolio.

$($Assume the investor can buy partial bonds, i$.$e fractional bonds.$)$

What should Pat do if the Kool bond is priced at $$5,187\mathrm{.}77$

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