Question $2(2$ points$)$ Question $9(1$ point$)$

The real rate of interest over the next two years is expected to remain at $2\%$ per annum. Inflation is expected

to be $1\mathrm{.}5\%$ per annum over the next two years. At the last auction, $2-$year T$-$Notes were priced to yield $5\%.$

What is the maturity risk premium for two$-$year maturities? $($Assume that the T$-$Notes have no liquidity risk

nor default risk$)$

$1\mathrm{.}40\%$

$1\mathrm{.}45\%$

$1\mathrm{.}43\%$

$1\mathrm{.}50\%$

$1\mathrm{.}47\%$ Question $10(1$ point$)$

Consider a Federal Government coupon bond with a $$1,000$ face value and a coupon rate of $1\%.$ If the bond

matures in $25$ years, pays semi$-$annual coupons, and the yield to maturity is $5\%,$ then what will the bond sell

for?

a$)$ $$1,000$

b$)$ $$365\mathrm{.}77$

c$)$ $$432\mathrm{.}75$

d$)$ $$804\mathrm{.}02$

e$)$ $$436\mathrm{.}24$

The Government of Canada $2-$year coupon bond has a face value of $$1,000$ and pays annual coupons of $$30.$

The next coupon is due in one year. The one$-$ and two$-$year spot rates on Government of Canada zero coupon

bonds are $6\%$ and $7\%.$ Use this information to answer the following $2$ questions.

What is the expected one$-$year spot rate in year $2?($Starting one year from today known as $E(k1)).$ Select

one option from a$)$ to e$)$

What is the expected price for the coupon bond at year one $($after the first coupon is paid$)?$ Select one

option from d$)$ to h$)$

a$)7\%$

b$)7\mathrm{.}3\%$

c$)8\%$

d$)8\mathrm{.}5\%$

e$)7\%$

f$)$ $$953\mathrm{.}62$

g$)$ $$962\mathrm{.}53$

h$)$ $$976\mathrm{.}30$

i$)$ $$980\mathrm{.}95$

j$)$ $$1,009\mathrm{.}54$