CFO of AAA company estimates the following spot interest rates on Treasure Securities: r 1 = 4 % , r 2 = 5 % , r 3 = 5 . 6 % . Company s bonds have an 1 1 % coupon rate interest is payable annually, and they mature in exactly 3 years. The par value of the bond is $ 1 0 0 0 .  

a$)$ Assuming the bond to be risk$-$free, estimate the present value of the bond.

$(3$ marks$)$

b$)$ Calculate the present value of the following Treasury issues $(1)5\%,1-$year bond, $(2)8\%,2-$years

bond. Determine the yield to maturity of each bond, showing the logic of your computation without

precise calculation.

$(4$ marks$)$

c$)$ Explain the difference between yield to maturity you observe.