We've always treated bond pricing as if we have a constant return. We know that cash flows given at different times are discounted slightly differently when we think about the yield curve. Let's go through bond pricing utilizing the information gained from our yield curve. Suppose I have the following bond prices. Assume these are zero coupon bonds with a par value of $1000 Time To Maturity Price 1 yr $958.23 2 yr $931.12 3 yr $815.20 4 yr $800.81 5 yr $764.45 (a) Find the Yield to Maturity for Each Bond (b) Find the implied forward rate for each length of maturity (c) How would you price a coupon bond that has a par value of $100 with a time to maturity of 4 years with a bi-annual coupon that is equal to 6% of the par value (it pays every two years, and this isn't annualized since I'm playing around with cash flow times, so at year two it will pay $6), utilizing the above information from the yield curve? (d) How would you price a coupon bond that has a par value of $100 with a time to maturity of 5 years with an annual coupon, whose coupon rate is 2 percent annualized? (e) Suppose I wish to enter into a forward contract in which I promise to buy a bond from someone 1 year from now. This bond has a par value of $1000 and has a 6% annualized monthly coupon rate (APR) and will mature in 2 years. What price will I lock in today for which I will pay in period two for that bond? (i.e. I promise to buy it next period, so I pay $0 today and will pay the price of the bond tomorrow but we agree on that price today) (f) Why might I want to price these cash flows differently? What information does the yield curve bring about the market when I utilize it to price these bonds? (Think about what the yield curve represents)