## Yields-to-Maturity Assignment

You observe the following yields-to-maturity in the market (Face Value=100):

Maturity | Coupon | YTM |

1 | 5% | 2.5% |

2 | 5% | 3.2% |

3 | 5% | 4% |

4 | 5% | 3.8% |

5 | 5% | 3.5% |

a. Compute the prices of the 5 coupon bonds.

b. Compute the implied term structure of interest rates.

c. Suppose the price of an 8% 5 year coupon bond is 102. Is there an arbitrage opportunity? If not, explain why. If yes, show how you can exploit it, and what your profits would be.

**Yields to Maturity Assignment**

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