Given instruments in the following table Instrument 6m (182 day) T-Bill 2y Treasury 3y Treasury 5y...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Given instruments in the following table Instrument 6m (182 day) T-Bill 2y Treasury 3y Treasury 5y Treasury 7y Treasury 10y Treasury Semiannual coupon rate Market yield Market price 0.75% 1.40% 2.00% 2.50% 2.90% 3.20% T (years) 0 a. Extract the semiannual discount factors for 10 years using the bootstrap method with linear and log-linear interpolation in discount factors. b. On the same graph, plot the semiannual zero-coupon yields (Formula 2.8 with w=0)) for 6m, 1y,.... 10y maturities for linear and log-linear interpolation methods. c. Using the discount factor curve from the log-linear interpolation, compute the price of a 5-year, 1% semiannual coupon bond and convert the price using Formula 2,5 to a semiannual yield. Do the same with a semiannual coupon rate of 8% to observe the coupon effect on yields. Hint: See Table 2.5 TABLE 2.5 Hint for bootstrap problem. 0.5 *** 2 7.5 0% 1.375% 2.125% 2.5% 3% 3.25% 9.5 10 Linear Zero rate Log-linear Zero rate DF DF 1 1 0.9962083 0.761% 0.9962083 0.761% 0.9724397 1.402% 0.9724406 1.402% 99.62083% 99.95086% 100.36222% 100% 100.62942% 100.42501% 0.7987633 3.018 % 0.7980435 3.031% 0.7373020 3.234 % 0.7366574 3.243% 0.7219367 3.285 % 0.7220633 3.283% FORMULA Pz(y, N, m) = D(T) = 1 (1+y/m)N-w (2.8) P(C, y, N,m) = P = N C/m 1 (1+y/m)i (1+y/m)N + i=1 1 1 = = (¹ -α+y/my) + (1+y/m}\\ 1 y (2.5) Given instruments in the following table Instrument 6m (182 day) T-Bill 2y Treasury 3y Treasury 5y Treasury 7y Treasury 10y Treasury Semiannual coupon rate Market yield Market price 0.75% 1.40% 2.00% 2.50% 2.90% 3.20% T (years) 0 a. Extract the semiannual discount factors for 10 years using the bootstrap method with linear and log-linear interpolation in discount factors. b. On the same graph, plot the semiannual zero-coupon yields (Formula 2.8 with w=0)) for 6m, 1y,.... 10y maturities for linear and log-linear interpolation methods. c. Using the discount factor curve from the log-linear interpolation, compute the price of a 5-year, 1% semiannual coupon bond and convert the price using Formula 2,5 to a semiannual yield. Do the same with a semiannual coupon rate of 8% to observe the coupon effect on yields. Hint: See Table 2.5 TABLE 2.5 Hint for bootstrap problem. 0.5 *** 2 7.5 0% 1.375% 2.125% 2.5% 3% 3.25% 9.5 10 Linear Zero rate Log-linear Zero rate DF DF 1 1 0.9962083 0.761% 0.9962083 0.761% 0.9724397 1.402% 0.9724406 1.402% 99.62083% 99.95086% 100.36222% 100% 100.62942% 100.42501% 0.7987633 3.018 % 0.7980435 3.031% 0.7373020 3.234 % 0.7366574 3.243% 0.7219367 3.285 % 0.7220633 3.283% FORMULA Pz(y, N, m) = D(T) = 1 (1+y/m)N-w (2.8) P(C, y, N,m) = P = N C/m 1 (1+y/m)i (1+y/m)N + i=1 1 1 = = (¹ -α+y/my) + (1+y/m}\\ 1 y (2.5)
Expert Answer:
Answer rating: 100% (QA)
To calculate the semiannual discount factors using the bootstrap method with linear and loglinear interpolation we start with the shortest maturity instrument 6month TBill and work our way up to the l... View the full answer
Related Book For
Posted Date:
Students also viewed these mathematics questions
-
Diffusion is incredibly important for the proper functioning of cells. Our question today is whether or not it is diffusion that is the cause of the commonalities between different cells in their...
-
The data listed in the following table are from a study by Benignus and others (1981). Blood and brain levels of toluene (a commonly used solvent) were measured in rats following a 3-hour inhalation...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
What is the result of the following? A. 0 B. 0.007 C. The code does not compile due to line 7. D. The code does not compile due to line 8. E. The code does not compile for another reason. 1: import...
-
Develop, debug, and test a program in either a high-level language or a macro language of your choice to compute the velocity of the falling parachutist as outlined in Example 1.2 Design the program...
-
A retail store would normally recognize revenue when: A. An order is made. B. Cash is received. C. Cash is received or a customer promises to pay. D. The product is taken by (or delivered to) the...
-
Cooling pipes at three nuclear power plants are investigated for deposits that would inhibit the flow of water. From 30 randomly selected spots at each plant, 13 from the first plant, 8 from the...
-
ABS sells construction materials to commercial and home builders. One of ABS's key processes is the order fulfillment process shown below and described as follows: All orders are assessed on...
-
Provided below is a trial balance for Juanita's Delivery Service. Juanita's Delivery Service Trial Balance September 30, 20 ACCOUNT TITLE DEBIT BALANCE CREDIT BALANCE Cash 5,000 Accounts Receivable...
-
1. Of the five facts that contributed to Kolds failure, which one do you think was the most damaging? Explain your answer. 2. Describe the feasibility analysis that Keurig Kold should have conducted...
-
Departments, identified by ID, operate a variety of printers, each located in a particular room in a particular building. Printers are supplied by a number of suppliers, identified by name, with each...
-
How does the Federal Anti-Riot Act seek to prevent the definition of to incite a riot from being applied in such a way that it violates First Amendment guarantees of freedom of expression?
-
Is the right to appeal a necessary concomitant of due process of law? In the absence of statutory rights to appeal, would the current Supreme Court find a constitutional right to appeal implicit in...
-
Compare the advantages and disadvantages to the defendant of insisting on the right to a speedy trial.
-
What court or courts in your state have jurisdiction to hear appeals from felony convictions? What changes, if any, would you propose for your states system of appellate courts?
-
Name some acts that would likely be considered obstruction of justice under federal and state statutes.
-
eight times the reciprocal of a number equals 4 times the reciprocal of 10.find the number
-
The liquidliquid extractor in Figure 8.1 operates at 100F and a nominal pressure of 15 psia. For the feed and solvent flows shown, determine the number of equilibrium stages to extract 99.5% of the...
-
Suppose that demand and supply curves in the market for corn are Qd = 20,000 50P and Qs = 30P. Suppose that the government would like to see the price at $300 per unit and is prepared to...
-
The supply of aluminum in the United States depends on the price of aluminum and the average price of electricity (a critical input in the production of aluminum). Assume that an increase in the...
-
Explain why, at a Cournot equilibrium with two firms, neither firm would have any regret about its output choice after it observes the output choice of its rival.
-
The payments set out in Table 9.9 have been made during the year in relation to a non-current asset bought at the beginning of the year. What cost figure should be used as the basis for the...
-
Outline three different depreciation methods and appraise them in the context of the definition and objectives of depreciation.
-
The following actual and estimated figures are available. Based on these figures, evaluate the following. a. Calculate annual depreciation under the straight-line method. b. Calculate the...
Study smarter with the SolutionInn App