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Consider the following risk-free T-bill and coupon bonds available for sale in the bond market (annual coupons): Maturity Price Coupon 1 942 T-bill (zero coupon

Consider the following risk-free T-bill and coupon bonds available for sale in the bond market (annual coupons):

Maturity

Price

Coupon

1

942

T-bill (zero coupon bond)

2

995

6.3%

3

998

7.5%

4

985.25

6.75%

Part A: Construct the term structure of interest rates for these four years.

Part B: Your company plans to issue four-year maturity bonds. You plan to issue bonds priced at $1010. At what level should you plan to set the coupon on your bond to justify this price?

PLEASE SHOW ALL FORMULAS AND CALCULATIONS. THANK YOU.

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