# Math

posted by
**Robbie**
.

Term-structure of interest rates and Arbitrage

The current term-structure of spot interest rates for safe zero-coupon bonds is

as follows:

Maturity, in

years

Interest rate

(r)

1 8%

2 10%

3 11%

4 12%

5 13%

There is a safe bond B which has 4 years before maturity and pays a coupon

of 12% at regular annual intervals and a face value of £100 at maturity.

(a) What will be the current price of bond B? [5 Marks]