1. Assume there are four risk-free bonds with the following characteristics, where coupons are paid out once per year: Bond Current Price Time to Maturity Coupon rate A $943.40 1 year Zero B $826.45 2 years Zero C $674.97 3 years Zero D $552.29 4 years Zero

1.1. Plot the term structure of interest1. [0.8 point]

1.2. Assume there is also a 4 year bond with coupon rate of 10%. What should be its market price? [0.8 points]

1.3. Estimate the yield to maturity of the bond described in part (1.2).

1.4. Compute the duration of the bond described in part (1.2).