You observe the following market prices and rates:

A 1 year bond with a coupon of 4% is trading at a yield of 5%

A 2 year bond with a coupon of 5% is trading at a yield of 6%

The current e/$ exchange rate is 1.25 (i.e. e 1 = $1.25)

(a): Find the prices for both bonds assuming the coupons and yields use annual compounding.

(b): Using only the prices you found in (a), determine the price of a 2-year zero coupon bond.

(c): Find the spot rate curve (i.e. the 1Y and 2Y points) using continuous compounding.

(d): If you observe that the 1-year forward euro/$ exchange rate is 1.2, what is the no arbitrage 1-year spot rate for the euro?

(e): Find the fixed rate for a 2-year interest rate swap