Question: QUESTION THREE Two KES 100 par value bonds have the following data Bond Maturity Coupon Market price A 3 years 6% 97.66 B 5 years

QUESTION THREE Two KES 100 par value bonds have the following

QUESTION THREE Two KES 100 par value bonds have the following data Bond Maturity Coupon Market price A 3 years 6% 97.66 B 5 years 7% 94.13 You are also provided with the following rates Year Spot rate Forward rate 1 ? 7.6% 2 ? 8.1% 3 ? 7.7% 4 ? 8.9% 5 ? 7.4% Required: a) Calculate the yield to maturity of each bond (4 marks) b) Find the spot rate for each year. Answer in % without the % sign to 3 decimal places (5 marks) c) Calculate the intrinsic prices of Bond A and Bond B. Which bond would you purchase? (6 marks) TOTAL 15 MARKS

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