Recall from earlier examples the spot rates z 1 = 9%, z 2 = 10%, and z
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Recall from earlier examples the spot rates z1= 9%, z2 = 10%, and z3 = 11%. Let yT be the YTM.
Calculate the price of a three-year annual coupon-paying bond using the spot rates. Assume the coupon rate is 5% and the face value is £100. Next, write a formula for determining the price of the bond using the YTM. Is z3 greater or less than y3? Why?
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