2. Two Treasury bonds with the following characteristics trade in the market: Bond Maturity Coupon rate YTM A 2 years 0% 2.5% A 3 years 9% 3.13% Face values are 100. Coupon payments are annual. (20 points) (a) Without any calculation, explain whether the bonds are trading at par, premium, or discount relative to their face value. (2 points) 1 (b) Determine the exact bond prices. [2 points) (c) Explain under which conditons the YTM is the appropriate measure of the bond's return, for i) a zero-coupon bond, ii) a coupon bond. [3 points) (d) Explain how the absence of default risk greatly simplifies bond valuation. (8 points) (e) What do credit spreads measure? (5 points)