Question: Problem 1. (a) The current term structure is defined by st = 0.06 + 0.01t for t = 1, 2, 3. Calculate the at-par yield

Problem 1. (a) The current term structure is defined by st = 0.06 + 0.01t for t = 1, 2, 3. Calculate the at-par yield rate for three-year bond. (b) You are given a $1000 three-year bond with annual 6% coupons redeemable at par. The annual spot rates are the same as in part (a). (i) Determine whether it is a premium or a discount bond using the at-par yield rate in part (a). (ii) Calculate the amount of premium or discount.

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