Question 1 You have estimated spot rates of Treasuries as follows: ri = 5%, r2 = 5.4% r3 = 5.7% r4 = 5.9% r's = 6% a. Calculate the PV of the following bonds, assuming annual coupons and a face value of $1000: i. 5% coupon rate, two-year bond ii. 5% coupon rate, five-year bond iii. 10% coupon rate, five-year bond b. Explain intuitively why the yield-to-maturity on the 10% bond (iii) is less than that on the 5% bond (ii). (Hint: Think about yield to maturity as a weighted average (by cash flows) of the spot rates/ c. What is the yield-to-maturity on a five-year zero-coupon bond? d. Show that the correct yield-to-maturity on a five-year annuity (that makes annual payments of $1) is 5.75%. e. Explain intuitively why the yield on the five-year bonds described in part(b) must lie between the yield on a five-year zero-coupon bond in part(d) and a five-year annuity in part(e)