Question 1 (20 marks)

One of the fixed-income portfolio managers is considering purchasing a three-year 6% annual coupon paying bond. Please use this information to answer parts A and B.

a. Using the par rates for annual coupon sovereign debt in the table below and bootstrapping method to obtain the zero coupon curve.

[5 marks]

1-year	2.3%
2-year	3.4%
3-year	4.3%

b. What is the value of the option free bond that is being considered for purchase??