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A 2-year zero-coupon bond is selling for $890.00. What is the yield to maturity of this...

A 2-year zero-coupon bond is selling for $890.00. What is the yield to maturity of this bond? The price of a 1-year zero coupon bond is $931.97. What is the yield to maturity of this bond? Calculate the forward rate for the second year.

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Answer #1

Hence, YTM on 2-years bond is 6.00%

Hence, YTM on 1-year bond 7.30%

Forward rate for second year:

= (1+7.30%)^2/(1+6%)-1

= 8.62%

Hence, forward rate is 8.62%

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