Zero-coupon bonds are available with a principal of $1 and the following maturities: (a) 1 year (market
Question:
Zero-coupon bonds are available with a principal of $1 and the following maturities:
(a) 1 year (market price $0.93),
(b) 2 years (market price $0.82),
(c) 3 years (market price $0.74).
Calculate the yield to maturities for the three bonds. Use a bootstrapping method to work out the forward rates that apply between 1–2 years and 2–3 years.
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To calculate the yield to maturity for a zerocoupon bond we can use the formula YTM F P1n 1 w...View the full answer
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