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Consider the market rates for the maturities 1, 2, and 3 years respectively in the table...

Consider the market rates for the maturities 1, 2, and 3 years respectively in the table below. What is par rate of a 3-year bond with annual payments. (Answer with two decimal accuracy)

t R(0,t)
1 2.00
2 4.00
3 6.00

Solutions

Expert Solution

Rate for 3 year bond = [(1.12)(1.24)(1.36)]^1/3 - 1

Rate for 3 year = 23.61%

So,

Par rate for a 3 year bond is 23.61%

jeff jeffy answered 3 years ago
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