Question

Calculate the one and two-year zero rate from the following information. Face value Current price Coupon Maturity 100 95 0 1 year 100 92 1.5 paid every six months; 3.0 total per year. 2 years

Answer 1

7.38%

Step-by-step explanation:

Interest rate is the rate of difference between the current price and face value in a specified period of time in annual terms.

Face value Current price Coupon Maturity

100 95 0 1 year

100 92 1.5 paid every six months

One year rate = ( 100 / 95 ) - 1 = 0.0526 = 5.26%

Now use following formula to calculate the Two years rate

=Rate(4,1.5,-92,100)x2 = 0.0738 = 7.38%