Question

Consider the following risk-free T-bill and coupon bonds available for sale in the bond market (annual...

Consider the following risk-free T-bill and coupon bonds available for sale in the bond market (annual coupons):

Maturity

Price

Coupon

1

942

T-bill

2

995

6.3%

3

998

7.5%

4

985.25

6.75%

  1. Construct the term structure of interest rates (you have enough information to find four rates).
    1. Your company plans to issue four-year maturity bonds. You plan to issue these bonds priced at $1010. At what level should you plan to set the coupon on your bonds to justify this price?
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