Compute yield-to-maturity for the following zero-coupon bonds: ? 1-year zero-coupon bond, traded currently at 990 dollars ? 2-years zero-coupon bond, traded currently at 950 dollars ? 3-years zero-coupon bond, traded currently at 890 dollars Assume that all 3 bonds have the same nominal: 1000 dollars

1. 1-year zero-coupon bond

FV = PV * (1 + r)^n

FV = 1,000

PV = Price = 990

r = Yield to maturity

n = 1

(1 + r)^n = FV/PV

(1 + r) = (FV/PV)^(1/n)

1 + r = (FV/PV)^(1/n) - 1

r = (FV/PV)^(1/n) - 1

r = (1,000/990)^(1/1) - 1

r = 0.0101010101

r = 1.01010101%

The yield to maturity of the one-year zero coupon bond is 1.01010101%

2. 2-year zero-coupon bond

FV = PV * (1 + r)^n

FV = 1,000

PV = Price = 950

r = Yield to maturity

n = 2

(1 + r)^n = FV/PV

(1 + r) = (FV/PV)^(1/n)

1 + r = (FV/PV)^(1/n) - 1

r = (FV/PV)^(1/n) - 1

r = (1,000/950)^(1/2) - 1

r = 0.02597835209

r = 2.597835209%

The yield to maturity of the two-year zero coupon bond is 2.597835209%

3. 3-year zero-coupon bond

FV = PV * (1 + r)^n

FV = 1,000

PV = Price = 890

r = Yield to maturity

n = 3

(1 + r)^n = FV/PV

(1 + r) = (FV/PV)^(1/n)

1 + r = (FV/PV)^(1/n) - 1

r = (FV/PV)^(1/n) - 1

r = (1,000/890)^(1/3) - 1

r = 0.0396089215

r = 3.96089215%

The yield to maturity of the three-year zero coupon bond is 3.96089215%

Plot of the yield curve

PLEASE SEE THE ATTACHED FILE.