You have a Treasury Bond that pays $100 one year from today and $1100 two years from today. What should the price of your bond be?

Question

You notice that the yield to maturity on a one year-zero coupon treasury bond is 1% and the yield to-maturity on a two year-zero coupon treasury bond is 2%

Answer 1

Yiou discount the first payment (coupon)at 1% you discount the second payment (coupon plus principal) at 2%.

The present value of the Cash Flows is thus

PV = 100*(1/(1.01)) + 1100*(1/(1.02)²) I'll let you do the calculation