Three government bons are in issue, bonds A, B and C each bondhas a par value of K100 and is redeemable at the par value. Thefollowing additional information ia available in respect of eachbond.
Bond Maturity term Annual coupon rate Price
Bond A 1 year 3.5% K99.90
Bond B 2 years 3.75% K98.75
Bond C 3 Years 3.80 % K97.80
a) by bootstrapping the above coupon paying bonds, estimate theone year , two year and three year spot rates and state the shapeof the resulting spot yield curve.
b) Calculate the yield to maturity of each of the bond B and Cand discuss the relationships between the spot rates and yields tomaturity for both bonds.
