Question: Please help with solving this question! 1. Below is a list of prices for zero-coupon bonds of various maturities. Maturity (Years) Price of $1,000 Par

Please help with solving this question!

1. Below is a list of prices for zero-coupon bonds of various maturities.

Maturity (Years) Price of $1,000 Par Bond (Zero-Coupon)

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1 $943.40

2 $873.52

3 $816.37

A) A 12% coupon $1,000 par bond pays an annual coupon and will mature in 3 years. What should the yield to maturity on the bond be?

B) Compute the annual spot rate you expect for next year (that is the next year annual forward rate)

C) If at the end of the first year the yield curve flattens out at 11%, what will be the 1-year return obtained from holding the coupon bond in (a) over 1 year?

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