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A 10-year 8% coupon bond currently sells for $90. A 10-year 4% coupon bond currently sells for $80. What is the 10-year zero rate? (Hint:
A 10-year 8% coupon bond currently sells for $90. A 10-year 4% coupon bond currently sells for $80. What is the 10-year zero rate? (Hint: Consider taking a long position in two of the 4% coupon bonds and a short position in one of the 8% coupon bonds.)
I understand that in:
year 0 = 90 - 2 * 80 = -70, and in
year 10 = 200 - 100= 100 ....
Where do the 200 and the 100 come from? How do I continue solving the exercise?
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