Question: Use the following table to answer the questions below: (a) What is the spot rate for a 3 year bond? (b) Calculate the short rates

Use the following table to answer the questions below:

Use the following table to answer the questions below: (a) What is

(a) What is the spot rate for a 3 year bond?

(b) Calculate the short rates r1; r2; r3 and r4.

(d) Suppose an agent buys bonds B;C and D, holds them for one year and then sells them all. Find the price the agent will be able to sell each of the three bonds at.

(e) Based on the prices you found in C., write expressions for the Holding Period Returns of bonds B;C and D and observe that the Holding Period Returns are the same.

Bond Par Value Years to Maturity Yield to Maturity Coupon Rate $1000 STDD STDD $1000 2% 4% 1% 9% 0% 0% 0% 0% 3

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