Problem: Suppose you observe the following prices for zero-coupon bonds (pure discount bonds) that have no risk of default:
Maturity Price per $1 of Face Value Yield to Maturity
1 year 0.97 3.093%
2 years 0.90
Q1. What should be the price of a 2-year coupon bond that pays a 6% coupon rate, assuming coupon payments are made once a year starting one year from now?
Q2. Find the missing entry in the table.
Q3. What should be the yield to maturity of the 2-year coupon bond in Part (1)?
Q4. Why are your answers to parts (2) and (3) of this question different?