13. The current on-the-run yields for theKathyCorporation are as follows: (answer D, E and F) excel

Maturity (years)

Yield to Maturity (%)

Market Value

1

7.5

100

2

8

100

3

8.5

100

Assume that each bond is an annual-pay bond. Each bond is trading at par, so its coupon rate is equal to its yield to maturity.

Answer the below questions.

Year

Spot Rate (%)

One-Year Forward Rate (%)

1

2

3

(b) Using the spot rates, what would be the value of a 3-year 9% coupon option-free bond of this issuer?

(c) Using the binomial model (which assumes that one-year rates undergo a lognormal random walk with volatilitys), show that ifsis assumed to be 15%, is it correct that thelower one-year forward rate one year fromnowequal to7.5%.

(d) Demonstrate that if is assumed to be 15%, using Excel solver to solve how much is the lower one-year forward rateone yearfrom now. Pls draw a binomial model and put the value on each of the node.

(e) Demonstrate that if is assumed to be 15%, using Excel solver to solve how much is the lower one-year forward ratetwo yearsfrom now. Pls draw a binomial model and put the value on each of the node.

(f) Determine the value of a 3-year,10% coupon bond that is callable at par (100) assuming that the issue will be called if the price exceeds par.