You are given the following information: The yield of a one year zero coupon bond is...

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You are given the following information: The yield of a one year zero coupon bond is...

You are given the following information: The yield of a one year zero coupon bond is 2.0% while the yields on a 2 and 3 year fixed coupon bonds are 2.5% and 3.5% respectively. What is the 2-year Zero Rate?

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Answer 1

Answer #1

2 year zero rate = [(1.02)(1.025)]^1/2 - 1

2 year zero rate = 2.25%

So,

Two year Zero Rate = 2.25%

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Answer 2

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