(a) The current term structure of interest rates is such that the one-year rate is 0.5%, the two-year rate is 1%, the three-year rate is 2% and thereafter the term structure is flat at 2.25%. What is the price of a five-year bond which pays coupons annually at rate 4%, assuming a face value of 500 ? (5 marks) (b) Using the same term structure as in the previous part (a), price a two-year bond with face value 1000 and coupon rate 2%. Compute the yield to maturity on this bond. (5 marks) (c) An 8% coupon rate, five-year bond is with yields 6% now. Assume annual coupon payments and a face value of $100. i. If this yield to maturity remains unchanged. What will be its price one year later? (2 marks) ii. What is the return to an investor who held the bond over this year? ( 5 marks)