25. Spot interest rates and yields (S3.3) Look again at the bonds in part

(b) of Problem 24.

a. Explain intuitively why the yield to maturity on the 10% bond is less than that on the 5%

bond.

b. What should be the yield to maturity on a five-year zero-coupon bond?

c. Show that the correct yield to maturity on a five-year annuity is 5.75%.

d. Explain intuitively why the yield on the five-year bonds described in part

(b) of Problem 24 must lie between the yield on a five-year zero-coupon bond and a five-year annuity.