Answer-first summary for fast verification
Answer: 3.51%
**Correct answer: D. 3.51%** For a 2-year par bond with semiannual coupons, the coupon rate \(c\) satisfies: \[ 100 = \frac{100c}{2}e^{-0.02(0.5)} + \frac{100c}{2}e^{-0.025(1.0)} + \frac{100c}{2}e^{-0.03(1.5)} + \left(100 + \frac{100c}{2}\right)e^{-0.035(2.0)} \] Using the discount factors: - \(e^{-0.01} \approx 0.99005\) - \(e^{-0.025} \approx 0.97531\) - \(e^{-0.045} \approx 0.95600\) - \(e^{-0.07} \approx 0.93239\) Solving for \(c\) gives approximately **3.51%**. So the two-year par yield is **3.51%**.
Author: Manit Arora
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Question-163.2. (Difficult!) Assume the following two-year zero rate curve, with continuous compounding: 2.0% @ 0.5 years, 2.5% @ 1.0 year, 3.0% at 1.5 years, and 3.5% at 2.0 years. What is the two-year PAR YIELD?
A
3.47%
B
3.49%
C
3.50%
D
3.51%
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