1. The following is a list of prices for zero-coupon bonds of various maturities with a face value of £1000.

Maturity (Years) Price of the Bond (£)

1 995.36

2 986.19

3 977.42

4 965.25

5 953.56

(a) Calculate the yields to maturity (YTM) of each bond and discuss the shape of the term structure of the interest rates.

(b) Discuss the shape of the term structure in terms of stylized facts.

(c) The Treasury plans to issue a 5-year coupon bond (with a face value of £1000), paying coupons once per year with a coupon rate of 5%. What will be the price of the coupon bond?

(d) Calculate the duration of a 4-year coupon bond that pays a coupon of 2% per year.