Question: Problem 2 Suppose that Bond A has $100 face value and is a two year coupon bond that pays 6% annual coupons. Bond A costs

Problem 2 Suppose that Bond A has $100 face value and

Problem 2 Suppose that Bond A has $100 face value and is a two year coupon bond that pays 6% annual coupons. Bond A costs $104.50. Bond B is a two year zero coupon bond with face value of $100 that costs $93. (a) What are the 1-year and 2-year spot rates (EAR)? (b) What is the forward rate (as an EAR) for a loan from t = 1 year to t = 2 years? (c) Suppose that a two year coupon bond paying 10% annual coupons trades for $112 for each $100 of face value. Explain what you would do. Problem 2 Suppose that Bond A has $100 face value and is a two year coupon bond that pays 6% annual coupons. Bond A costs $104.50. Bond B is a two year zero coupon bond with face value of $100 that costs $93. (a) What are the 1-year and 2-year spot rates (EAR)? (b) What is the forward rate (as an EAR) for a loan from t = 1 year to t = 2 years? (c) Suppose that a two year coupon bond paying 10% annual coupons trades for $112 for each $100 of face value. Explain what you would do

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