The prices of the following coupon bonds are as follows (with Face Value=100): Maturity Coupon Price 1 4.75% 103.675 2 7.5% 111.753 3 9.375% 121.445 4 6.25% 114.130 5 5.50% 112.158
a. Assuming that coupons are paid annually, calculate the implied term structure of zero coupon rates.
b. Compute the yields to maturity of the above coupon bonds.
c. What are the implied prices of zero-coupon bonds with maturities of 1 to 5 years?
d. How can you construct sunthetically a 3-year zero-coupon bond? Which coupon bonds would you have to invest in? What are the proportions in which you will have to hold those coupon bonds in order to replicate the discount bond?
e. How about a 5-year zero-coupon bond?