Find the 1-year and 2-year interest rates

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Reference no: EM132003096

Suppose that a 2-year zero coupon bond trades for $90.70 per $100 face value. Also suppose that a 2-year coupon bond paying annual coupons of 4% trades for $98.20 per $100 of face value.

(a) Find the 1-year and 2-year interest rates.

(b) Compute the price of a 2-year coupon bond with face value of $100 and annual coupon of 12%.

(d) What are the yield-to-maturities of the 4% and 12% coupon bonds? (as an APR with annual compounding).

(e) Explain why the yield to maturity of the 10% coupon bond is lower than the 4% coupon bond.

Reference no: EM132003096

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