Math Help Needed

Question

Alright, I cannot figure out all of the steps to get the answer to a problem shown in Reading 36, page 128 of Level 2 in the physical book copy.

The bottom of the page is showing steps to solve for a Spot Rate from a Par Rate.  Specifically, it's a 2 year spot rate that we are trying to solve.  Any help is greatly appreciated to show all steps to isolate the 2 yr Spot Rate and get the answer they show of 3.008.

Par = 100
Par Rate = 3%
N = 2 yearly payments 
1 Yr Par Rate =2.500%
2 Yr Spot Rate =  ??

equation the reading shows:
3/1.025            +        103 / (1 +r) ^2    =  100

I get that 3/1.025 = 2.9268

Then subtracting 2.9268 from both sides gives:

103 / (1+r)^2    =   97.0732

From this point on I get stuck on the exact steps to isolate and solve for r.

policedog · Answer

103 / (1+r)^2 = 97.0732103 / 97.0732 = (1+r)^21.0611 = (1+r)^2(1.0611)^(1/2) = 1+r1+r = 1.0301r = 0.0301r = 3.01%

avannoord · Answer

Multiply both sides by (1+r)^2. That will get you to => 103*(1+r)^2 / (1+r)^2 = 97.0732*(1+r)^2. The (1+r)^2 term on the left cancels out. And then you divide both sides by 97.0732.Once you get there you take the square root of both sides to get rid f the square term and subtract 1 from both sides. Leaves you with "r = ......"