The current term structure is shown here:

1. late a. (7 marks) Calculate the current price of a government bond with a face value of $1000 and a coupon rate of 7%. It is an annual coupon bond that matures in 3 years.
2. (13 marks) Calculate the current price of a bond issued by XYZ corporation if it has a face value of $1000 and a coupon rate of 7%. It matures in 3 years. Use the following table to find the default risk premium. (Assume the default risk is not a function of maturity)

Bond	Rating	Required rate of interest
XYZ Co. 7% 3 years from now	AA	?
ABC Co. 8% 3 years from now	B	8.5%
NP Co. 10% 5 years from now	AA	7.2%
XT Co. 3% 5 years from now	AA	7.7%
BB Co. 10% 3 years from now	A	6.85%

The Term Structure of Interest Rate 7 Interest rate (%) 0 0 1 4 5 2 3 Time to maturity (year) The Term Structure of Interest Rate 7 Interest rate (%) 0 0 1 4 5 2 3 Time to maturity (year)