Problem Set 2 1. The Term Structure of Interest Rat The term structure of interest rates refers to relationship between the annualized interest rates on zero-coupon bonds with different terms to maturity. Suppose the prices on discount bonds paying off $1 for sure at maturity are selling for the prices shown in the table below: es Term to Maturity Bond Pricep PT in dollars 0. 9904* 0.961 0.91542 0.8584 40 5- 60 0. 7054* 0. 623P 0. 4604 10e Using these data, compute the annualized interest rate on each of the ten discount bonds. 0. 386 2. Bond Pricing Recall that any coupon bonds can always be regarded a portfolio of discount bonds. Using this insight, and the same data from question 1, above, find the price of a ten year coupon bond that makes an annual interest (coupon) payment of $100 at the end of each year, every year, for the next ten years before making a final payment of $1000 (given by the bond's par or face value) at maturity ten years from now.*' 3. Ordinal Utility Consider a consumer who uses his or her income Y to purchase ca apples at the price of paper apple and sb bananas at the price ofphper banana, subject to the budget constraint Suppose that the consumer preferences over apples and bananas are described by the utility function where a. satisfying 0 bananas? 1 . How much does the consumer like apples relative to