Part 3 required only..........

104 100 You are given a set of five bonds whose cash flows and prices are given as follows. Note that their debt to maturity is different from 1 to 5 years. 4 3.5 Cash Flow = 3 , and Current Price = 100 2.5 102.5 0 100 102 0 0 100 1. Calculate the yield to maturity for the five bonds. 4 3.5 3 100 4 3.5 103 0 4 103.5 0 0 0 0 0 0 2. Draw the yield curve. 3. Assume that the liquidity premium for all five years is given in the following table. Calculate the one-year interest rates in year 1, 2, 3, 4 and 5 based on the liquidity premium theory. Year Liquidity Premium 0% 0.5% 1% 1.5% 2% 1 2 3 4 5 104 100 You are given a set of five bonds whose cash flows and prices are given as follows. Note that their debt to maturity is different from 1 to 5 years. 4 3.5 Cash Flow = 3 , and Current Price = 100 2.5 102.5 0 100 102 0 0 100 1. Calculate the yield to maturity for the five bonds. 4 3.5 3 100 4 3.5 103 0 4 103.5 0 0 0 0 0 0 2. Draw the yield curve. 3. Assume that the liquidity premium for all five years is given in the following table. Calculate the one-year interest rates in year 1, 2, 3, 4 and 5 based on the liquidity premium theory. Year Liquidity Premium 0% 0.5% 1% 1.5% 2% 1 2 3 4 5