12A ( 6 + 2 + 2 + 2 + 4 ] The yield curve is flat and unchanging at 5%. Let's take a 5 year bonds that pays a fixed annual coupon of C% on a face value of 100. Take 6 points of time on the x-axis: now, after a year, after 2 years, after 3 years, after 4 years and after 5 years. There are three 5 year bonds that pay coupons of 0%, 5%, and 8%. a) In a table, report the clean price of each bond for each of these six dates ( so you should have 3 * 6 = 18 entries ) b) On the same graph using these six dates ( please be very neat ) i) Plot the clean price of the bond which pays a coupon of 5% ii) Plot the dirty price of the 5% bond for intermediate dates iii) Plot the clean price of the bond which pays a coupon of 0% iv) Plot the clean price of the 8% bond, and decompose this into its coupon effect and the pull to par effect or 12B [ 3+3+2+4+4 ] The current price of default-free bonds A, B, C with a face value of 100 are shown in ne table below: Bond Coupon maturity ( yrs) price A 5% 1 99.05 B 6% 2 100 7% 3 100.8 a) Determine the prices of zero coupon bonds maturing in 1, 2 and 3 years, and the spot zero coupon yield curve. b) Calculate all possible forward yields c) What should be the price of a bond D that matures in 2 years and pays a coupon of 8% ? d) Replicate D using A and B e) Suppose the price of D is 100. Describe a trading strategy that locks in a sure profit. 12A ( 6 + 2 + 2 + 2 + 4 ] The yield curve is flat and unchanging at 5%. Let's take a 5 year bonds that pays a fixed annual coupon of C% on a face value of 100. Take 6 points of time on the x-axis: now, after a year, after 2 years, after 3 years, after 4 years and after 5 years. There are three 5 year bonds that pay coupons of 0%, 5%, and 8%. a) In a table, report the clean price of each bond for each of these six dates ( so you should have 3 * 6 = 18 entries ) b) On the same graph using these six dates ( please be very neat ) i) Plot the clean price of the bond which pays a coupon of 5% ii) Plot the dirty price of the 5% bond for intermediate dates iii) Plot the clean price of the bond which pays a coupon of 0% iv) Plot the clean price of the 8% bond, and decompose this into its coupon effect and the pull to par effect or 12B [ 3+3+2+4+4 ] The current price of default-free bonds A, B, C with a face value of 100 are shown in ne table below: Bond Coupon maturity ( yrs) price A 5% 1 99.05 B 6% 2 100 7% 3 100.8 a) Determine the prices of zero coupon bonds maturing in 1, 2 and 3 years, and the spot zero coupon yield curve. b) Calculate all possible forward yields c) What should be the price of a bond D that matures in 2 years and pays a coupon of 8% ? d) Replicate D using A and B e) Suppose the price of D is 100. Describe a trading strategy that locks in a sure profit