Question: 1) Fabozzi, 10 th edition, Chapter 6, Problem #14 (15 points) You observe the following Treasury yields (all yields are shown on a bond equivalent
1)Fabozzi, 10thedition, Chapter 6, Problem #14 (15 points) 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)What should the price of a 5% four-year Treasury security be?
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