Question: B1 B2 B3 B4 B5 B6 B7 B8 B9 B10 2.3 3.3 4.3 5.3 6.3 96.3 97.3 98.3 99.3 100.3 B. Estimate term structure of

B1	B2	B3	B4	B5	B6	B7	B8	B9	B10
2.3	3.3	4.3	5.3	6.3	96.3	97.3	98.3	99.3	100.3

B. Estimate term structure of discount factors, spot rates and forward rates by using data on five semi-annual coupon paying bonds with $100 face value each: The bonds, respectively, have 1.25, 5.35, 10.4, 15.15 and 20.2 years to maturity; pay coupon at annual rates of B1, B2, B3, B4, and B5 percent of face value; and are trading at quoted spot market prices in dollars of B6, B7, B8, B9 and B10. Specify the discount factor function d(t) by a third degree polynomial with unknown parameters a, b, and c, as done in class. Using estimated d(t) function, determine spot rate and forward rate functions by assuming half-year compounding. Then write the values of the following based on your estimation.

1. Coefficient of parameter a in first bond price equation.

2. Coefficient of parameter b in first bond price equation.

3. Coefficient of parameter c in first bond price equation.

4. Coefficient of parameter a in second bond price equation.

5. Coefficient of parameter b in second bond price equation.

6. Coefficient of parameter c in second bond price equation.

7. Coefficient of parameter a in third bond price equation.

8. Coefficient of parameter b in third bond price equation.

9. Coefficient of parameter c in third bond price equation.

10. Coefficient of parameter a in fourth bond price equation.

11. Coefficient of parameter b in fourth bond price equation.

12. Coefficient of parameter c in fourth bond price equation.

13. Coefficient of parameter a in fifth bond price equation.

14. Coefficient of parameter b in fifth bond price equation.

15. Coefficient of parameter c in fifth bond price equation.

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