Bootstrapping - what am I doing wrong in this calculation?

Hi All! In one of the questions of the curriculum YTM (also called par rates) are converted to spot rates. YTM are as follows:

1y YTM = 1.25%
2y YTM = 1.5%

To obtain the spot rates we need to bootstrap, I get this (but I know I am wrong):

2y spot:
100 = (1.5 / 1.025) + (101.5 / (1 + spot)^2)
100 = 1.46341 + (101.5 / (1 + spot)^2)
98.5366 = (101.5 / (1 + spot)^2)
(1 + spot)^2) = 101.5 / 98.5366 = 1.0301
spot = 1.0301^0.5 - 1 = 0.1493

But the correct answer is 0.015019. Also the spot is supposed to be above par rate so I am pretty sure I am wrong but I do not know where. Anybody knows?

The 1-year spot rate is 1.25%, not 2.5%.

2 Likes

Good spot … I need to focus more