Answer TWO questions. The following information relates to 4 bonds, A, B, C, and D where the coupon payments are annual and the principle is 100. Bond A B D Maturity 1 year 2 years 3 years 4 years Coupon 7% 7% 7% 7% Market Price 100.94 98.34 113.43 107.23 (a) Estimate the spot rates for years 2, 3 and 4. [20 marks] (b) Estimate the forward rates for years 2, 3 and 4. [20 marks] (c) Estimate the flat yields for all of the bonds. Are flat yields that useful? [10 marks] (d) Estimate the duration for bonds C and D using the spot rates calculated in a) as the cost of capital each year, and explain the difference between duration and modified duration. [20 marks] (e) Do bonds represent a risk-free investment? (30 marks]