Q2:

The following table summarizes prices of variousdefault-free

zero-coupon bonds($100 facevalue):

Maturity(years)

1

2

3

4

5

Price(per

$100 facevalue)

$95.2395.23

$90.7890.78

$86.1186.11

$81.4881.48

$76.4076.40

a.

Compute the yield to maturity for each bond.

b.

Plot thezero-coupon

yield curve(for the first fiveyears).

c.

Is the yield curve upwardsloping,

downwardsloping, orflat?

Note:

Assume annual compounding.