SECTION A"- ANSWER ANY EOUR QUESTIONS: EACH QUESTION 20 Marks Question 1 (20 marks) 1.1) You have estimated spot rates as follows r,-5.00%, = 5.40%, n . 5.7096, ra = 5.90%, rs _ 6.00%. where n is the discount rate for year i. a) What are the discount factors for each date (that is, the present value of $1 paid in year (i.e. consider cash flow of $1 dollar per year for the next 5 years)? Using these rates, calculate the PV of the following bonds assuming annual coupons and face values of $1,000: (i) (ii) 4% coupon rate, 1-year bond; and 8% coupon rate, 5-year bond. 5 marks) Which bond would you purchase if the economic condition has been volatile? why? Critically discuss your answer. 5 marks b)