Assume the zero-coupon yields on default-free securities are as summarized in th

Question

Assume the zero-coupon yields on default-free securities are as summarized in the following table:

Maturity

1 year

2 years

3 years

4 years

5 years

Zero-Coupon Yields

3.003.00%

3.603.60%

4.004.00%

4.304.30%

4.604.60%

Consider a four-year, default-free security with annual coupon payments and a face value of $1,000 that is issued at par. What is the coupon rate of this bond?

The par coupon rate is _______

(Round to two decimal places.)

Maturity

1 year

2 years

3 years

4 years

5 years

Zero-Coupon Yields

3.003.00%

3.603.60%

4.004.00%

4.304.30%

4.604.60%

Explanation / Answer

=PRODUCT(I8:I11)^1/4 where I8 to I11 are the product of 1+rates of each year

Year Rate 1 0.03003 1.03003 2 0.036036 1.036036 3 0.04004 1.04004 4 0.043043 1.043043 1.037276 Par Coupon Rate 3.73%

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