The easiest way to do this given the discount factors is to use the formula
where z(t) is the spot rate associated with the discount factors d(t). The first spot rate, which pertains to the bond maturing in December 2003, is equal to (1/0.9657 – 1) × 2 = 7.10%. The second spot rate, which pertains to the payment being made in June 2004, is equal to ((1/0.9225)0.5 – 1) × 2 = 8.23%.
