1 The BigFoot Corporation has two bond issues with information as follows (as of 2017). Assume semi-annual interest payments and the same priority in the event of default. Bond A Bond B Maturit Coupon % Yield to maturity (% Price 2020 2020 10.65 98.40 10.75 88.34 Terms (Years) Spot Rates (Zero-Coupon) 5% 8% 10% 2 Neither bond's price is consistent with the spot rates. What trading strategy do you think is (more) profitable here? 2 A 100 par value bond with 3 years to maturity and a 12 percent coupon has a yield to maturity of 10 percent. Interest is paid semi-annually. Use the duration rule to estimate the percentage price change for this bond, if the yield increases by 125 basis points. Why is this estimate likely to be an inaccurate measure of the actual change in the bond's value? 3 Briefly explain why bonds of different maturities have different yields in terms of the expectations as well as the liquidity preference hypotheses. You could use examples of different shapes of the yield curve to describe the implications of each hypothesis