You are given the following information regarding the domestic government fixed-interest bond market: the current price of a one-year bond paying coupons at a rate of 4% per annum and redeemed at par is £102.25 per £100 nominal, and the current price of a two-year bond paying coupons at a rate of 6.5% per annum and redeemed at par is £100.37 per £100 nominal. Calculate, to 4 decimal places (in percentages), the two-year spot rate of interest, i2 .

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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You are given the following information regarding the domestic government fixed-interest bond market:

  • the current price of a one-year bond paying coupons at a rate of 4% per annum and redeemed at par is £102.25 per £100 nominal, and
  • the current price of a two-year bond paying coupons at a rate of 6.5% per annum and redeemed at par is £100.37 per £100 nominal.


Calculate, to 4 decimal places (in percentages), the two-year spot rate of interest, i2 .

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