The Slice & Dice Investment Co. needs some help understanding the intricacies of bond pricing. It has observed the following prices for zero coupon bonds that have no risk of default:

a. How much should Slice & Dice be willing to pay for a three-year bond that pays a 6-percent coupon, assuming annual coupon payments start one year from now?
b. What is the yield to maturity of the three-year coupon bond?
c. Suppose Slice & Dice purchases this coupon bond and then €œun-bundles€ it into its four component cash flows: three coupon payments and the par value amount. At what price(s) can Slice & Dice resell each of the first three cash flows (the coupon payments) today?
d. The remaining cash flow (the face value amount) is a €œsynthetic€ three-year zero coupon bond. How much must this €œstrip bond€ be sold for if Slice & Dice is to break even on the investment?
e. What is the yield to maturity on the synthetic three-year zero coupon bond?
f. Why are the answers for (b) and (e)different?

Maturity 1 year 2 years 3 years Price per $1 face value 0.97 0.9 0.81