313.5

5. The yield curve currently looks like this:

[graph showing that r1=0.06, r2=0.08 and r3=0.09]

• What should the price of a two-year, $1000 par, 9% coupon bond with annual coupons be? (The next coupon is due in one year.) (3)

• What should the price of a one-year STRIP be? (2)

• Which should have the higher yield-to-maturity? WHY? (Do not do any computations for this!) (3)

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