A "zero coupon bond" (or just "zero") is a bond, that does not pay any interest, it just pays the face value when it matures. Of course nobody would purchase a bond without interest, that's why zero coupon bonds are sold at a discount.

Suppose you are given the following information about the current prices of zero coupon bonds:

bond:

price

1-year zero, face value $1,000

$925

2-year zero, face value $1,000

$811

3-year zero, face value $1,000

$708

I.e. if you buy 1-year zero, you must pay now $925 and you will receive $1,000 as the bond matures in exactly 1 year, or, alternatively, if you buy 3-year zero, you pay today $708 and will receive $1,000 in exactly 3 years.

Given the information, find:

1. (5 points) Yield to maturity for each bond.
2. (5 points) Using zero-coupon bond yields calculated above, what is the price of 3-year coupon bond, if the coupon payment is $100 ($100 received at the end of each year 1, 2, and 3)?
3. (5 points) Given the price of 3-year coupon bond calculated above and coupon payment of $100 at the end of each year 1, 2, and 3, calculate coupon bond rate.