From the Treasury strip yield curve, the current required yields on one-year and two-year Treasuries are i
Question:
From the Treasury strip yield curve, the current required yields on one-year and two-year Treasuries are i1 = 5.75 percent and i2 = 7.25 percent, respectively. Further, the current yield curve indicates that appropriate one-year discount (corporate) bonds are yielding k1 = 6.95 percent, and two-year discount (corporate) bonds are yielding k2 = 14.45 percent. Calculate the one-year forward rate on the Treasuries. Leave five decimal places for the output and then express it in percentages.
b) (15 points) From the Treasury strip yield curve, the current required yields on one- Treasuries are i1 = 5.05 percent. Further, the current yield curve indicates that appropriate one-year discount (corporate) bonds are yielding k1 = 6.15 percent. Suppose that one-year forward rate on the Treasuries (f1) is 9.088%, and one-year forward rate on the corporate bond (c1) is 16.574%. Based on this information, calculate the marginal probability of repayment on the corporate bond in years 1 and 2, respectively. Leave four decimal places for each output and then express each output in percentages.
Clearly label your findings (e.g., profit margin = .....) and designate which part of the question you are answering (if there are multiple parts). Answers (whether correct or incorrect) without work shown will receive zero points. Simply typing your work will suffice. (e.g., x = y + 2z).
Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders