1. (10 points) Consider the prices of following Strips: Strip A B Maturity 1 2 3 Price 93.46 86.50 79.40 a) You wish to issue risk-free 3-year bonds that pay coupons annually. Based on the prices of zero-coupon bonds in the table, what coupon value (expressed as a percent of face value) will you choose so that the bonds trade at par (i.e, trade at a price equal to face value)? b) Determine f1--3. c) Under the expectation hypothesis, what is the expected price of Strip C one year from now? d) You are considering an investment over a one-year horizon. You can either (1) buy Strip B now, and sell it after one year at the then prevailing price, or (II) buy A and hold it for one year Which of these two strategies would be expected to yield a bigger return under the expectation hypothesis? Which of these strategies would be expected to yield a bigger return under the liquidity premium hypothesis? Explain