Question 3 Consider the following term structure of interest rates: r = 5%,r2 = 7%, r3 = 10%. a) Find the prices of the following bonds: 1. 3-year zero-coupon bond with face value $1,000 2. 2-year bond with coupon rate 15% and face value $100 (paying coupons annually) 3. 3-year bond with coupon rate 7% and face value $1,000 (paying coupons annually) b) Find out whether the following bonds are fairly priced: 1. 2-year zero-coupon bond with face value $1,000 and observed price $873.44 2. 3-year bond with coupon rate 15%, face value $100 (paying coupons annually) and observed price $93.88 3. 2-year bond with coupon rate 5%, face value $1,000 (paying coupons annually) and observed price $1,097.54