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Lecture 4

The document provides Treasury yield and spot rate data for securities with maturities ranging from 6 months to 10 years. It asks to: 1) Calculate the missing spot rates for 9.5 and 10 year securities 2) Calculate the theoretical value of a 6% six-year Treasury bond 3) Calculate the two-year forward rate starting in four years

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Abdul Khalique Solangi
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33 views

Lecture 4

The document provides Treasury yield and spot rate data for securities with maturities ranging from 6 months to 10 years. It asks to: 1) Calculate the missing spot rates for 9.5 and 10 year securities 2) Calculate the theoretical value of a 6% six-year Treasury bond 3) Calculate the two-year forward rate starting in four years

Uploaded by

Abdul Khalique Solangi
Copyright
© © All Rights Reserved
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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13.

You observe the yields of the following Treasury securities (all yields are shown on a
bond-equivalent basis):

Year Yield to Spot Rate Year Yield to Spot Rate


(Period) Maturity (%) (%) (Period) Maturity (%) %
0.5 (1) 5.25 5.25 5.5 (11) 7.75 7.97
1.0 (2) 5.50 5.50 6.0 (12) 8.00 8.27
1.5 (3) 5.75 5.76 6.5 (13) 8.25 8.59
2.0 (4) 6.00 ? 7.0 (14) 8.50 8.92
2.5 (5) 6.25 ? 7.5 (15) 8.75 9.25
3.0 (6) 6.50 ? 8.0 (16) 9.00 9.61
3.5 (7) 6.75 ? 8.5 (17) 9.25 9.97
4.0 (8) 7.00 ? 9.0 (18) 9.50 10.36
4.5 (9) 7.25 ? 9.5 (19) 9.75 10.77
5.0 (10) 7.50 ? 10.00 (20) 10.00 11.20

All the securities maturing from 1.5 years on are selling at par. The 0.5 and 1.0-year
securities are zero-coupon instruments. Answer the below questions.

(a) Calculate the missing spot rates.


(b) What should the price of a 6% six-year Treasury security be?
(c) What is the six-month forward rate starting in the sixth year?
You observe the following Treasury yields (all yields are shown on a bond equivalent
basis):

Year (Period) Yield to Maturity (%) Spot Rate (%)


0.5 (1) 10.00 10.00
1.0 (2) 9.75 9.75
1.5 (3) 9.50 9.48
2.0 (4) 9.25 9.22
2.5 (5) 9.00 8.95
3.0 (6) 8.75 8.68
3.5 (7) 8.50 8.41
4.0 (8) 8.25 8.14
4.5 (9) 8.00 7.86
5.0 (10) 7.75 7.58
5.5 (11) 7.50 7.30
6.0 (12) 7.25 7.02
6.5 (13) 7.00 6.74
7.0 (14) 6.75 6.46
7.5 (15) 6.50 6.18
8.0 (16) 6.25 5.90
8.5 (17) 6.00 5.62
9.0 (18) 5.75 5.35
9.5 (19) 5.50 ?
10.0 (20) 5.25 ?

All the securities maturing from 1.5 years on are selling at par. The 0.5 and 1.0-year
securities are zero-coupon instruments. Answer the below questions.

(a) Calculate the missing spot rates.


(b) Using the theoretical spot rates calculate the theoretical value of a 7%, six year
Treasury bond.
(c) Using the theoretical spot rates calculate the two-year forward rate four years from
now.

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