Question: a) How do bond analysts use bootstrapping? b) Calculate the missing spot rates for the following Treasury yields. (All yields are shown on a bond
- a) How do bond analysts use bootstrapping?
b) Calculate the missing spot rates for the following Treasury yields. (All yields are shown on a bond equivalent basis). 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.
| Year (Period) | Yield to Maturity (%) | Spot Rate (%) |
| 0.5 (1) | 4.00 | 4.00 |
| 1.0 (2) | 4.25 | 4.25 |
| 1.5 (3) | 4.50 | 4.51 |
| 2.0 (4) | 4.75 | 4.78 |
| 2.5 (5) | 5.00 | ? |
| 3.0 (6) | 5.25 | 5.32 |
| 3.5 (7) | 5.50 | 5.58 |
| 4.0 (8) | 5.75 | 5.85 |
| 4.5 (9) | 6.00 | 6.12 |
| 5.0 (10) | 6.25 | ? |
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