Question 1. 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.

1. (5pts.) Calculate the yield to maturity for the five bonds.

2. (15pts.) Assume that the current and expected future one-year interest rates are given in the following table. Calculate the "LIQUIDITY PREMIUM" for all five years based on the liquidity premium theory.

Short Questions (2 problems x 20 points 40 points) Question 1. 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. 8 8 8 8 108 7.5 5yr 4yr 3yr 2yr lyr 7.5 107 107.5 0 0 0 Cash Flow = 100 100 100 100 = 7 7.5 7 105 0 and Current Price = 5 0 0 0 0 104 0 0 100 1. (5pts.) Calculate the yield to maturity for the five bonds. 2. (15pts.) Assume that the current and expected future one-year interest rates are given in the following table. Calculate the "LIQUIDITY PREMIUM" for all five years based on the liquidity premium theory. Year One-Year Bond Rate 1 4% 2 5% 3 6% 4 5% 5 5% Short Questions (2 problems x 20 points 40 points) Question 1. 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. 8 8 8 8 108 7.5 5yr 4yr 3yr 2yr lyr 7.5 107 107.5 0 0 0 Cash Flow = 100 100 100 100 = 7 7.5 7 105 0 and Current Price = 5 0 0 0 0 104 0 0 100 1. (5pts.) Calculate the yield to maturity for the five bonds. 2. (15pts.) Assume that the current and expected future one-year interest rates are given in the following table. Calculate the "LIQUIDITY PREMIUM" for all five years based on the liquidity premium theory. Year One-Year Bond Rate 1 4% 2 5% 3 6% 4 5% 5 5%