2) There are three T-Bonds with face value of $1,000 that can be bought at the market:

I. Zero bond, time to maturity 1 year, market price $990

II. 10% coupon bond with annual coupon payments, time to maturity 2 years, market price $1,150

III. Zero bond, time to maturity 2 years

What is the equilibrium market price of the coupon bond (III)? [Hint: Round to two decimal places!]

3) Assume that the (expected) one-year interest rates over the next five years are 3%, 4%, 6%, 7%, and 8%. The interest rates on one- to five-year bonds are 3%, 4%, 5%, 6.5%, and 7.5%. Determine the liquidity premium for five-year bond! [Hint: Round to two decimal places!]