Question: Exercise 1 For the Treasury curve with the data given below. 2 30Y Treasury Coupon Rate Price Freq Coupon 1 1.92% 100 2 1.92% 2Y

Exercise 1 For the Treasury curve with the data given below. 2 30Y Treasury Coupon Rate Price Freq Coupon 1 1.92% 100 2 1.92% 2Y 1.75% 100 2 1.75% 3Y 1.71% 1002 1.71% 1.76% 100 2 1.76% 1.87% 100 2 1.87% 2.00% 100 2.00% 2.31% 100 2 2.31% 2.52% 100 2 2.52% a) Estimate the forward rates assuming they are piecewise constant. Forward rates are constant on the following intervals b) Estimate the forward rates assuming they are piecewise linear. Forward rates at interval meetings are equal c) Compare the discount functions. (Functions should align at each input point) Functional form of the forward rates given below Years 0-1 1-2 2-3 3-5 5-7 7-10 10-20 20-30 Constant Beg/End Fwd1 Fwd2Fwd3PwdFwdFwd6wd7Pwds Years 0-1 1-2 2-3 3-5 5-7 7-10 10-20 20-30 Linear Begin FWD1FWD2FWD2FWD3FWD FWD5 Unear FWD6 FWD7 End FWD1FWD2FWD3 FWD4 FWDS FWD6 FWD7 FWDS Use excel with the solver function for this exercise. Exercise 1 For the Treasury curve with the data given below. 2 30Y Treasury Coupon Rate Price Freq Coupon 1 1.92% 100 2 1.92% 2Y 1.75% 100 2 1.75% 3Y 1.71% 1002 1.71% 1.76% 100 2 1.76% 1.87% 100 2 1.87% 2.00% 100 2.00% 2.31% 100 2 2.31% 2.52% 100 2 2.52% a) Estimate the forward rates assuming they are piecewise constant. Forward rates are constant on the following intervals b) Estimate the forward rates assuming they are piecewise linear. Forward rates at interval meetings are equal c) Compare the discount functions. (Functions should align at each input point) Functional form of the forward rates given below Years 0-1 1-2 2-3 3-5 5-7 7-10 10-20 20-30 Constant Beg/End Fwd1 Fwd2Fwd3PwdFwdFwd6wd7Pwds Years 0-1 1-2 2-3 3-5 5-7 7-10 10-20 20-30 Linear Begin FWD1FWD2FWD2FWD3FWD FWD5 Unear FWD6 FWD7 End FWD1FWD2FWD3 FWD4 FWDS FWD6 FWD7 FWDS Use excel with the solver function for this exercise

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