Given instruments in the following table (a) Extract the semiannual discount factors for 10 years using the
Question:
Given instruments in the following table
(a) Extract the semiannual discount factors for 10 years using the bootstrap method with linear and log-linear interpolation in discount factors.
(b) On the same graph, plot the semiannual zero-coupon yields (Formula 2.8 with \(w=0\) ) for \(6 \mathrm{~m}, 1 \mathrm{y}, \ldots, 10 \mathrm{y}\) maturities for linear and \(\log\)-linear interpolation methods.
(c) Using the discount factor curve from the log-linear interpolation, compute the price of a 5 -year, \(1 \%\) semiannual coupon bond and convert the price using Formula 2.5 to a semiannual yield. Do the same with a semiannual coupon rate of \(8 \%\) to observe the coupon effect on yields.
Hint: See Table 2.5
Table 2.5
Step by Step Answer:
Mathematical Techniques In Finance An Introduction Wiley Finance
ISBN: 9781119838401
1st Edition
Authors: Amir Sadr