Use the table below for the questions that follow, and assume semi-annual interest payments. Bond A B Coupon Rate 6% Zero coupon The duration of Bond B is Yield 4.5% 6.25% Maturity 3 years 7 years ? (round your answer to two decimal places)

Suppose that the term structure of interest rates is: t 0.5 1 1.5 2 r 1% 1.2% 1.4% 1.8% Interest rates are annual interest rates that are semi-annually compounded. 1. Calculate the price and modified duration of a 1-year bond with a 6% coupon rate, with coupons paid semi-annually. The bond has a face value of 100.0 2. Calculate the price and modified duration of a 2-year bond with a 10% coupon rate, with coupons paid semi-annually. The bond has a face value of 100.0 3. Compare your results from 1 and 2 above. Which bond is more sensitive to changes in interest rates?

Suppose that the current 6-month, 1-year, 1.5-year and 2-year interest rates are 2.2%,3%, 3.5% and 3.75%, respectively. a) Calculate the prices of a 1-year and 2-year Treasury bonds. In each case, assumethe face value of £100 and the coupon rate of 5% per annum and that coupons arepaid semi-annually. Assume continuous compounding. Compare the obtainedresults. Are they consistent with your expectations? b) Calculate the par yield on the 1-year bond with semi-annual coupons

Interest premium. Estimate the default premium and the maturity premium given the following three investment opportunities: a Treasury bill with a current interest rate of 3.25%; a Treasury bond with a twenty-year maturity and a current interest rate of 4.5%; and a AAA, corporate bond with a twenty-year maturity and an interest rate of 9%. What is the default premium? % (Round to two decimal places.)