Practice problem Vol.3 Reading 13, Q18 - rolling down return

CFA Level III Fixed Income
#1

Hi folks,

In the question I was calculating the rolldown return of the bond below:

“Roll down the THB yield curve: Purchase a 2-year zero-coupon note with a current yield-to-maturity of 2.00% and sell it in a year.”

My calculation is:
The current price = 100/(1+2%)^2 = 96.1169 (same with the solution);
For the price after a year, based on my calc, it should be 100/(1+2%) = 98.0392.
Then second year when mature, 100/(1+2%)^0 = 100

However, the solution shows the price after a year is 99.009 instead of my number and it is not in the errata. I am very confused, could you please help?

#2

What’s the 1-year YTM?

#3

It is 1%.

I see - can I understand like this, the two year YTM 2.0% will become one year YTM 1.0% as a roll-down because the yield curve is static. Therefore, at the end of the first year, we would treat it like a 1 year 1.0% bond, i.e. price would be 90.01 ?

#4

Bingo!