A. We don't have a yield to maturity gure with which to discount all the cash flows (coupons and face value). Therefore, we must use the market rates implied by the zero coupon bond prices for the appropriate time period. A oneyear zero coupon bond will increase from $0.97 to $1 over one year, implying that 0.97x(1+r1) = 1, or r1=3.09%. Similarly, 0.90x(1+r2)2=1 so that r2=5.41%, and 0.81x(1+r3)3=1 so that r3=7 28%. These rates can be used to discount the three-year coupon bond's cash ow. (Alternatively, we could use the zero coupon bond prices as given). B: $60 + $60 + $60 + $1,000 =$970.72 1.0309 (1.0541)2 (1.0728)3 (1.0728)3