The yield to maturity on an N-year zero coupon bond is equivalent to the N-year spot rate. Thus, to determine the present value of the zero-coupon bond, we need to calculate the 3-year spot rate.

Using the formula: (1 + Z₃)³ = (1 + ₁f₀) × (1 + ₁f₁) × (1 + ₁f₂)

Where Z = spot rate and _nf_m = The n year rate m periods from today, (₁f₀ = the 1 year spot rate now)

(1 + Z₃)³ = (1.035) × (1.115) × (1.1975)

Z₃ = 1.3819^1/3 − 1 = 0.11386, or 11.39%

Then, the value of the zero coupon bond = 1,000 / (1.1139)³ = 723.62, or approximately $724.

or, using a financial calculator, N = 3; I/Y = 11.39; FV = 1,000; PMT = 0; CPT → PV = 723.54, or approximately $724.