We are given the prices of four bonds with maturities and coupons shown in the Table below.

Determine the zero rates R(T ) from the prices of these bonds. All bonds pay coupons every six months.

for this type of problem we assume that the zero rate R(T) is piece-wise constant on the time interval between the maturities of the
bonds used for bootstrapping.

For example, R(T) has the same value for all T : [0, 1Y ], another value for T : (1Y, 2Y ], and so on.

Bond principal Maturity Coupon Bond price
$100 1Y 1.25% 100.196
$100 2Y 2.25% 100.190
$100 5Y 2.50% 101.142
$100 10Y 3.15% 101.422