Answer: 5.28%.

To calculate the 2-year zero-coupon rate using bootstrapping: 1. For the 1-year bond: The 1-year spot rate equals the 1-year par rate = 4.15% 2. For the 2-year bond with 5.25% coupon: - Price = 100 = 5.25/(1 + z₁) + 105.25/(1 + z₂)² - Where z₁ = 4.15% (1-year spot rate) - 100 = 5.25/(1.0415) + 105.25/(1 + z₂)² - 100 = 5.04 + 105.25/(1 + z₂)² - 94.96 = 105.25/(1 + z₂)² - (1 + z₂)² = 105.25/94.96 = 1.1083 - 1 + z₂ = √1.1083 = 1.0528 - z₂ = 5.28% The 2-year zero-coupon rate is approximately 5.28%.

Author: LeetQuiz Editorial Team