Ah Lees problem is to recommend the best investment among three different US Treasury bonds. The $10 million investment will be liquidated in three years to help repay a bank loan charging a fixed rate interest at 8.50% per year. The bonds, each with a $1,000 par value and annual convention, are described as following:

Bond	Annual Coupon	Current Price	Maturity (yrs)
Bond 1	0%	$882.50	5
Bond 2	11.625%	$1403.39	5
Bond 3	5.5%	$1107.59	3

Treasury constant maturities	Spot Rate Today
1-year	1.54%
2-year	1.61%
3-year	1.61%
4-year	1.63%
5-year	1.65%
7-year	1.75%

Perform RCY analysis on the 3 bonds

(ii) Perform RCY analysis on the 3 bonds (40 Points) (Hint: Make use of spot rates to calculate the corresponding forward rates for coupon reinvestment calculation.) F2 Year 1 Year 4 Year 2 Year 3 Year 5 (Hint: You also need forward rates for future Bond price) Bond Price C+F F3 C 2F3 Year 1 Year 2 Year 4 Year 3 Year 5 (ii) Perform RCY analysis on the 3 bonds (40 Points) (Hint: Make use of spot rates to calculate the corresponding forward rates for coupon reinvestment calculation.) F2 Year 1 Year 4 Year 2 Year 3 Year 5 (Hint: You also need forward rates for future Bond price) Bond Price C+F F3 C 2F3 Year 1 Year 2 Year 4 Year 3 Year 5