Consider a 10% coupon bond with a face value of 100 that matures in 2 years from now. Assume that there is one coupon payment per year and that the bond is absolutely risk-free. The current spot rate curve is given in the following table (yearly compounding).

s1 = 4% s2 = 6% s3 = 8%

a What is the price of this bond?

b Find an analytical formula for the yield of this bond and use your formula to compute the bonds yield numerically.

c Compute the bonds Macauley duration.

d Compute the bonds price and yield in one year from now assuming that the spot rates will evolve according to expectation dynamics. Assume further that the first coupon payment is still to be received.