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1 . ( 2 0 points ) Assume the following government bonds are traded, and they pay annual coupons: Bond A Bond B Face value

1.(20 points) Assume the following government bonds are traded, and they pay annual
coupons:
Bond A Bond B
Face value $1,000 $1,000
Annual coupon rate 5%10%
Maturity (years)22
Price $990.00 $1,100.00
(a) What are the 1-year spot rate, the 2-year spot rate, and the forward rate between
years 1 and 2?
(b) What is the price of Bond C with a 2-year maturity, 8% coupon rate, and $1,000
face value? What is its yield to maturity?

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