Bonds [4]

You are given the following information about three bonds.

Bond Year of Coupon Yield to Bond Maturity Maturity Price A 2 10% 7.5862% 1,043.29 B 2 20% 7.6746% 1,220.78 C 3 8% 9.7995% 995.09 Coupons are paid at the end of the year (including the year of maturity). All three bonds have a face value of 1,000 at maturity.

1. Find the time zero prices, Pi , P2, and P3, of one dollar to be delivered in years 1, 2, and 3, respectively.

2. Find the 1, 2, and 3 year spot rates of interest ri , r^ and r^.