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    Calculating the YTM's of default free zero coupon bonds

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    The following table summarizes prices of various default- free zero coupon bonds (expressed as a percentage of face value)

    Maturity (years) 1. 2. 3. 4. 5
    Price (per $100 face value) 94.52 89.68 85.40 81.65 78.35

    Plot the zero-coupon yield curve(for the first five years).

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    Solution Preview

    YTM for 1 year maturity zero coupon bond=(FV/P)^(1/n)-1=(100/94.42)^(1/1)-1= 5.91%

    YTM for 2 year maturity ...

    Solution Summary

    The solution depicts the steps to estimate the YTM of default free zero coupon bonds.