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What is the .5 year zero rate (also known as "spot rate") give that the...

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Finance

What is the .5 year zero rate (also known as "spot rate") give that the information for the following .5 year, 1 year, and 1.5 year bonds:

NOTE: The .5 & 1 year bonds are zero-coupon. The 1.5 year bond has a $5.00 coupon which is paid semi-annually (in 2 increments of $2.50, each six-months apart).

Time to Maturity (in years) Coupon ($) Price Zero Rate
0.5 $ - $99.50
1 $ - $99.00
1.5 $5.00 $102.00

HINT: You must solve recursively as shown in the lecture (first, you have to solve for the .5 year zero rate, then the 1 year zero rate, then the 1.5 year zero rate)

Group of answer choices

.980%

.991%

1.001%

1.003%

1.005%

Answer & Explanation Solved by verified expert
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