B. The Kenyan government is issuing three bonds with terms to redemption of exactly one, two and three years respectively. Each bond pays coupons of 7% annually in arrear, and is redeemable at par. The effective annual gross redemption yields from the one, two and three year bonds are 4%, 3% and 3% respectively. (a) At the date of issue, calculate the one-year, two-year and three-year spot rates of interest [9 Marks) (b) From the above spot rates of interest, calculate all possible forward rates of interest [6 Marks] (c) Calculate the 2-year par yield and the 3-year par yield. [5 Marks) [Total 20 Marks] B. The Kenyan government is issuing three bonds with terms to redemption of exactly one, two and three years respectively. Each bond pays coupons of 7% annually in arrear, and is redeemable at par. The effective annual gross redemption yields from the one, two and three year bonds are 4%, 3% and 3% respectively. (a) At the date of issue, calculate the one-year, two-year and three-year spot rates of interest [9 Marks) (b) From the above spot rates of interest, calculate all possible forward rates of interest [6 Marks] (c) Calculate the 2-year par yield and the 3-year par yield. [5 Marks) [Total 20 Marks]