Abstract: This paper investigates the performance of physical-layer network coding (PNC) using amplify and forward (AF) protocol for two-way relay channels. Taking direct link between two source nodes into account, achievable rate for three time slot PNC scheme is computed. We also derive high-SNR approximations of outage probabilities for two and three slot PNC schemes. Simulation results verify our theoretical asymptotic derivations. Moreover, power allocation factors of three time slot PNC is optimized. Numerical results show maximum sum-rate of different schemes for variable relay positions with equal and variable node powers. Simulation results demonstrate that three time slot PNC can exploit the asymmetries to improve performance.