Question: Problem 1 (11 points): Consider a multi-factor key rate model with key rates being YTM on 2, 5, 10, and 30-year par ponds. Assume also

Problem 1 (11 points): Consider a multi-factor key rate model with key rates being YTM on 2, 5, 10, and 30-year par ponds. Assume also that currently YTM on 2, 5, 10, and 30-year bonds are 9%, 8%, 7%, and 6% respectively. Assume all bonds have a $100 face value. Using this information, you can find

  • KR012=0.017938 for 2-year par bond

  • KR015=0.040554 for 5-year par bond

  • KR0110=0.071062 for 10-year par bond

a) (3 points) Find KR012, KR015, KR0110, and KR0130 for 30-year par bond

b) (5 point) Find KR012, KR015, KR0110, and KR0130 for a 7-year par bond if YTM for this is 7.6%

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