Question is: Treasury securities with the following maturities and coupon rates are trading at prices shown (per $100 face value). Suppose that coupons payments (if there are any) are made annually.

Maturity Coupon Rate Current Price

1 year 0% 99.00990

2 years 3% 101.97068

Then,what is the YTM of a two-year Treasury strip (i.e. two year zero coupon bond) with face value $100?

My intuition/attempt at answering is:

101./1.01+103/[(1.01)(1+r)] r0.03, or 3%, is the rate that would correspond to the one-year interest rate in year 1. Then, 100/(1.01)(1.03)96.126 would correspond to the current price of a 2-year zero coupon bond and solving for YTM in: 96./(1+YTM)^2, YTM0.02 or 2%. The YTM of a two-year Treasury strip is 2%.