You are considering investing in a 12 coupon rate bond with


You are considering investing in a 12% coupon rate bond with a three-year maturity and a face value of 1000. You observe the following prices for discount, or zero-coupon, bonds: Maturity Price 1 98.04 2 94.26 3 86.39 (a) What is the fair market price of the bond? (b) What is the yield to maturity of the bond? (c) What does the market expect the 1 year rate to be in 1 year from now? (d) What does the market expect the 1 year rate to be in 2 years from now? (e) What does the market expect the 2 year rate to be in 1 year from now?

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Financial Management: You are considering investing in a 12 coupon rate bond with
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