1. Assume the interest rate of a three-year maturity zero coupon bond is 7.5% and a five-year bond is 9.5%. What is the expected interest rate between year three and five if you are considering:

1. The liquidity preference theory?
2. The expectations theory?

The answers should clearly indicate that you understand the theories and can put them in a context.

2. A (zero coupon) bond gives you a 5% return the first year and 7% return the second and the third year.

1. What is the yield to maturity?
2. Show (calculate and explain) how changed credit risk and changed (expected) inflation influences the value of the three-year bond.

Explain and motivate your answers. Use a selected rate of your own choice to re-calculate the valuations in of the (ii)-question if necessary.

You have two bonds (A and B) with a (modified) duration of 4.3. Bond A is a coupon bond with a semi-annual coupon of SEK 75 and Bond B is a zero coupon bond.

1. How much does the value of each bonds change if the interest rate changes by 0.1%-unit.
2. What is the time to maturity for the zero coupon bond?
3. Which bond has the longest time to maturity?
4. (Calculate the accrued interest of the coupon bond if you buy the bond 1 September year 2 and the coupons are paid out 1 January and 1 July.