1. The following table gives yields and durations for three 15-year bonds. The three coupon rates are 0%, 3.5%, and 7%. Which coupon rate belongs to which bond? What is the shape of the term structure of spot rates underlying the valuation of these bonds?

Bond Yield Duration

#1 3.50% 11.59

#2 3.50% 14.75

#3 3.50% 10.26

2. Assume the following term structure of spot rates: 1 = 1.55%, 2 = 1.82%, 3 = 2.03%. Use the return-maturity Expectations Theory to calculate the implied expected one-period spot rates E( 1 ) (1). Also, calculate the implied expected two-period spot rate ( ' 2 ).