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Assume that the government bonds with different maturities and coupon rates are given as follow: Maturity 1 2 3 4 5 6 Price 99.10 99.50

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Assume that the government bonds with different maturities and coupon rates are given as follow: Maturity 1 2 3 4 5 6 Price 99.10 99.50 100.00 99.50 99.10 98.00 Coupon rate 1% 1.5% 2% 2% 3% 3% A) Find prices of $1 in years 1 through 6. B) Find all the forward interest rates for between years land 2, years 2and 3 etc. all the way to year 6. C) What would be your forecast of HPR the 6 year bond between year 2 and 3? D) Now let?s say you notice that there exist another 3 year bond with price of 99.9 and a coupon rate of 1.9%. Can you profit from this information? Why or why not? How? E) How do you explain the fact that the 4 year bond pays a higher coupon every year and it has the same price as the 2 year bond which pays a lower coupon and has the same price? F) There is a project that you are contemplating to pursue with the following sure cash flows: Year 1 2 3 4 5 6 Cash flow -100 200 100 200 100 200 How much is the maximum that you are willing to invest for this project

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