SHOW WORK & FORMULAS

For the following questions interest is compounded discretely using the following yield curve. 2.0 0.5 0.0125 2.5 0.022 3.0 0.025 Tk 0.014 0.015 where both time and the interest rate use years as the time unit. Please give full reasons for your answers and work Question 4. (i) Find the discount factors associated with each time on this yield curve and also the associated spot rates sk (ii) Suppose that a 4% bond pays interest annually and has three years to maturity. Graph the cash flows (payments) from this bond and determine the present value of these flows with this yield curve. (iii) Suppose that asimilar 4% bond pays interest semi-annually and has three years to maturity. Graph the cash flows from this bond and determine the present value of these flows with the preceding yield curve. Is this value less than, equal to, or greater than the answer in part (ii)? What causes any differences in this present value? (iv) What is the equation for the internal rate of return on the bond in part (iii)? For the following questions interest is compounded discretely using the following yield curve. 2.0 0.5 0.0125 2.5 0.022 3.0 0.025 Tk 0.014 0.015 where both time and the interest rate use years as the time unit. Please give full reasons for your answers and work Question 4. (i) Find the discount factors associated with each time on this yield curve and also the associated spot rates sk (ii) Suppose that a 4% bond pays interest annually and has three years to maturity. Graph the cash flows (payments) from this bond and determine the present value of these flows with this yield curve. (iii) Suppose that asimilar 4% bond pays interest semi-annually and has three years to maturity. Graph the cash flows from this bond and determine the present value of these flows with the preceding yield curve. Is this value less than, equal to, or greater than the answer in part (ii)? What causes any differences in this present value? (iv) What is the equation for the internal rate of return on the bond in part (iii)