Suppose the current annualized spot rates are as follows (25 points): 6 months 2% 12 months 6% Assume semi-annual compounding and semi-annual coupon payment. Calculate the prices of (1) 6-month zero coupon bond and (2) 12-month zero coupon bond. The par value is $1000 for both bonds. (5 points) An investor has an investment horizon of six months. She can invest her money in two ways. First, buy the 6-month bond and hold it until maturity. Second, buy the 12-month bond and sell it 6 months later. The investor expects that the spot rates will stay the same 6 months later. Which investment strategy would the investor choose if she prefers a higher expected holding period return? (10 points) The investor purchased the bonds at time zero. Six months later, the annualized spot rates are as follows: 6 months 19% 12 months 20% Calculate the realized holding period return for both investment strategies. Is the 6-month bond risk-free? Is the 12-month bond risk-free? Explain. (10 points)