Consider an investment management firm that has made a 50 million investment in a 5-year zero-coupon government bond. This bond has a par value of 100. a) Use the spot rates in table 3 to calculate the 1-year investment return for this bond investment, in both per cent change and value terms. Assume the coupon payment frequency is annual for your calculations. b) What do you observe about your investment return result? Explain your answer clearly.

Consider an investment management firm that has made a 50 million investment in a 5-year zero- coupon government bond. This bond has a par value of 100.4 a) Use the spot rates in table 3 to calculate the 1-year investment return for this bond investment, in both per cent change and value terms. Assume the coupon payment frequency is annual for your calculations. b) What do you observe about your investment return result? + Explain your answer clearly. Table 3. Euro area spot rates at start date (buy bond) and one-year later (sell bond). Maturity Spot rates Spot rates years start date one-year later 12 0.75% 1.00% ka 22 1.25% 1.75% 32 42 1.00% 1.50% 2.25% 3.75% 4.00% 2.50% 52 4.00% 4.25% 62