11.

a) A 3-year bond has a face value of $1,000. It pays an 8% per annum coupon, with annual coupon payments. The 1-year zero rate is 5%, the 2-year zero rate is 6%; and the 3-year zero rate is 7%, where all of these rates are per annum with continuous compounding. What is the price of the bond today (3 years before maturity)?

b) Using the same bond, what is the value of the bond after it matures?