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Use arbitrage to determine the ytm of a two-year

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Reference no: EM133009528

You have been given the following coupon yield curve:

Maturity (years)                            1                   2                            3                     4

Coupon Rate (annual payments)   0%            8%                  10%              12%

YTM                                    1.5%             2.31%               3.10%           4.12%

Problem 1: Use arbitrage to determine the YTM of a two-year, zero coupon bond. (Hint: The price of a one year zero coupon bond with face value of $80 is $78.81.)

Option 1: 2.34%

Option 2: 2.31%

Option 3: 1.52%

Option 4: 1.35%

Reference no: EM133009528

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