1. Bootstrap: You are given these prices for three Treasuries with semi-annual p
ID: 2779587 • Letter: 1
Question
1. Bootstrap: You are given these prices for three Treasuries with semi-annual payments: Bond Maturity (Years) Coupon Rate (%) 8.00 4.00 Price 97.561 90.703 6.00 a) Construct combinations, or portfolios, of these securities that replicate (mimic) zero b) Use the synthetic zeros (coupon securities held in a portfolio that mimic zeros) to c) coupon bonds with maturities 0.5,1.0, and 1.5 years. compute their prices. Use the prices of zeros to compute spot rates and forward rates. age 1 of 2 220 Words English (US) sc : Fl F2 F3 F5
Explanation / Answer
Zero coupon bond value = F / (1 + r)t
Where:
F = face value of bond
r = rate or yield
t = time to maturity
bound
maturity
Coupon rates
price
Zero Coupon Bond Value
A
0.5
8.00
97.561
93.88
B
1.0
4.00
90.703
87.21
C
1.5
6.00
80.496
73.76
bound
maturity
Coupon rates
price
Zero Coupon Bond Value
A
0.5
8.00
97.561
93.88
B
1.0
4.00
90.703
87.21
C
1.5
6.00
80.496
73.76
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