Financial Risk Manager Part 1

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Explanation:

First, solve for the 1-year spot rate:

\`$102.63`64 = (\`$100` + 4.25) / (1 + z_1)

Solving for $z_1 = [(\`$ 100 + 4.25) / \ $102.63`64] - 1 = 1.57\%$

Next, use this rate to solve for the 2-year spot rate:

\`$105.36`51 = (4.75 / 1.0157) + (100 + 4.75) / (1 + z_2)^2

\`$100.68`85 = (100 + 4.75) / (1 + z_2)^2

Solving for $z_2 = [(\`$ 104.75 / \ $100.68`85)^{1/2} - 1] = 0.01997$ , or 1.99%

(Book 3, Module 42.2, LO 42.j)

Explanation:

First, solve for the 1-year spot rate:

\`$102.63`64 = (\`$100` + 4.25) / (1 + z_1)

Solving for $z_1 = [(\`$ 100 + 4.25) / \ $102.63`64] - 1 = 1.57\%$

Next, use this rate to solve for the 2-year spot rate:

\`$105.36`51 = (4.75 / 1.0157) + (100 + 4.75) / (1 + z_2)^2

\`$100.68`85 = (100 + 4.75) / (1 + z_2)^2

Solving for $z_2 = [(\`$ 104.75 / \ $100.68`85)^{1/2} - 1] = 0.01997$ , or 1.99%

(Book 3, Module 42.2, LO 42.j)

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Price as a Percentage of Par	Annual Coupon	Annual Period	Maturity (Years)
102.6364	4.25%	1	1
105.3651	4.75%	2	2

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RRohit

Last updated: June 26, 2026 at 17:00

0.50%.

1.99%.

2.22%.

3.95%.