Question 3. (i) Suppose that a 3% bond pays interest annually and has three years to maturity. Display the cash flows for this bond and determine the present value of these flows under the above yield curve. (ii) Suppose that a similar 3% bond pays interest semi-annually and has three years to maturity. Show the cash flows from this bond and determine the present value of these flows with this yield curve. (Describe explicitly how you determine the discount rates here) (iii) Is this value less than, equal to, or greater than the answer in part (i)? What causes any differences in this present value?

Question 4. For this question and the above yield curve (i) Find the continuous spot rates for s1, s2, . . . , s5. and describe the with also s8 = 0.025, s10 = 0.027 where the subscript indicates years from today. Based on this data (ii) What is the forward rate for a three year bond 2 years from now? Is this rate higher or lower than the current rate for a three year ZCB? (iii) What is the forward rate for a eight year bond 2 years from now? (iv) What will be the prices of 3 year (respectively 8 year) zero coupon bonds now and in two years time - based on these interest rates?Question 4. For this question and the above yield curve

(i) Find the continuous spot rates for s1, s2, . . . , s5. and describe the with also s8 = 0.025, s10 = 0.027 where the subscript indicates years from today. Based on this data (ii) What is the forward rate for a three year bond 2 years from now? Is this rate higher or lower than the current rate for a three year ZCB?

(iii) What is the forward rate for a eight year bond 2 years from now? (iv) What will be the prices of 3 year (respectively 8 year) zero coupon bonds now and in two years time - based on these interest rates?