1. Given the following spot rates on 1-year to 4-year zero coupon bonds:

Year Spot Rate 1 3.0% 2 3.5% 3 4.0% 4 4.5%

a. What is the equilibrium price of a four-year, 4% coupon bond paying a principal of $100 at maturity and coupons annually?

b. If the market prices the four-year bond such that it yields 3%, what is the bonds market price?