Supreme Investment Co.has observed that the market prices for the one-year and two-year zero coupon bonds that have no default risk are $965.90 and $901.54, respectively.
a)How much would Supreme pay for a two-year 5.8% annual coupon bond that has the same default risk as the zero-coupon bonds? Assume that interest is paid annually.
b)What is the yield to maturity of this two-year coupon bond?

Question

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The Answer of Supreme Investment Co.has observed that the market prices for the one-year and two-year zero coupon bonds that have no default risk are $965.90 and $901.54, respectively.
a)How much would Supreme pay for a two-year 5.8% annual coupon bond that has the same default risk as the zero-coupon bonds? Assume that interest is paid annually.
b)What is the yield to maturity of this two-year coupon bond?