1. You have a bond that pays a $3 coupon in 1 year and a $3 coupon in two years and a $3 coupon in three years. It matures in three years with principal repayment of $100 (paid at the same time as the final coupon). Suppose 1-year, 2-year, and 3-year zero coupon bond prices are 0.99, 0.97, and 0.92, respectively. Which is closest to the fair market price of the bond that you have?
a. $96.00
b. $98.00
c. $100.00
d. $102.00
e. $104.00
2. You would like would like to swap the uneven payments (note that the payments are $3 in year 1, $3 in year 2, and $103 in year 3) associated with the bond described in (5) for payments of equal amounts in 1 year, in 2 years, and in 3 years. Assuming you can find a swap counterparty who offers you a fair deal (and that interest rates are unchanged from those described in (5)), what is closest to the swap rate amounts will you receive in each year as a result of the swap?
a. $32.00
b. $34.00
c. $36.00
d. $38.00
e. $40.00