Based on the given YTM of a bond, the 1 year spot rate, and the bond payment, the 2-year spot rate is 3.72%.
First find the coupon payment:
= 3% x 1,000 face value
= $30
The 2 year spot rate can be found in the formula:
(Coupon payment / (1 + YTM)) + ( (Face value + Coupon) / (1 + YTM)²) = (Coupon payment / (1 + 1 year spot rate)) + ( (Face value + Coupon) / (1 + 2-year spot rate)²)
Solving gives:
30/1.037 + 1,030/1.037² = 30/1.025 + 1,030/(1 + 2 year spot rate)²
986.74 = 29.268 + 1,030/(1 + 2 year spot rate)²
957.472 = 1,030/(1 + 2 year spot rate)²
(1 + 2 year spot rate)² = 1,030 / 957.472
2 year spot rate = 1.037183 - 1
= 3.72%
In conclusion, the 2-year spot rate is 3.72%.
Find out more on spot rates at https://brainly.com/question/13844638.
