QUESTION 3a (i)

Following are current prices for pure discount bonds with face value of $1,250 of different

maturities as of 1 January 2022. Calculate the spot interest rates for each bond.

QUESTION 3a (ii)

Assume the expectations theory is valid. Based on your results in part (a), determine the spot

1-year, 2-year, and 3-year rates expected 1 year later on 1 January 2023.

QUESTION 3b

In corporate finance, the leverage ratio can be calculated by dividing capital by book value of

assets. How have regulators altered this ratio to determine the capital adequacy requirements for

banks or authorized depository institutions?