Data has been gathered on the maturities, coupon rates, and prices of a series of bonds with three years or less in maturity. Coupons are paid annually, and all bonds have a $1,000 par value. 

A regression is run in which the dependent variable, Y, is the price of each bond. There are three independent variables, X1, X2, and X3. These measure the cash flow paid by each bond in year 1, year 2, and year 3 respectively. Your regression output looks like this: 

Price = 0.956X1 + 0.905X2 + 0.851X3 

 What is the two-year spot rate?

Answer rating: 100% (QA)

The twoyear spot rate in this scenario can be derived from the coefficient of the year 2 cash flow X... View the full answer