Three government bonds are in issue, bond A, bond B and bond C. each bond has a par value of K100 and is redeemable at the par value. The following additional information is available in respect of each bond: Bond Maturity term Annual coupon rate Price Bond A 1 year 5% K101.25 Bond B 2 years 6% K103.50 Bond C 3 years 7% K104.25 By bootstrapping the above coupon paying bonds, estimate the one year, two year and three year spot rates and state the shape of the resulting spot yield curve.

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Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.