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A three year option free bond with an 8% annual coupon rate has a yield to maturity of 9%. Assume that the par value of
A three year option free bond with an 8% annual coupon rate has a yield to maturity of 9%. Assume that the par value of the bond is $100. We are given that the one year and two year spot rates are 6.5% and 7.0% respectively.
a. compute the fair price of this three year option free bond.
b. compute the three year spot rate using bootstrapping method.
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