1. Assume that the yields to maturity for an 1-year 10% coupon bond and an 2-year 13% coupon bond are 12% and 15%, respectively. Both bonds have face values of $1,000. (Assume that the coupon payment is made annually.)

(a) Calculate the price?for each of the bonds. (Keep 2 decimal places)

1-year bond:

2-year bond:

(b) Calculate the 1-year and 2-year spot rates. (Keep 4 decimal places)

1-year spot rate s₁:

2-year spot rate s₂:

(a) Calculate the quasi-modified duration for each of the bonds. (Keep 2 decimal places)

1-year bond:

2-year bond:

2. Assume that the 1-year zero-coupon bond is sold at $87.23, and the yields to maturity for the coupon bonds selling at market prices equal to their face values are 14% and 16% for 1-year and 1.5-year issues respectively. Coupons are paid every 6 months and face values are $100 for all the bonds.

(a) Calculate the spot rate curve (s_0.5, s₁, s_1.5). (Keep 4 decimal places)

s_0.5: s₁: s_1.5 :

(b) Compute the quasi-modified duration for each of these bonds. (Keep 2 decimal places.)

Zero-coupon bond:

14% coupon bond:

16% coupon bond:

(c) Determine the current price of an 10% coupon bond with face value $100 and 18 months to maturity.