The following Table shows the cash flows of different fixed-income assets and their prices. Asset Price...
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The following Table shows the cash flows of different fixed-income assets and their prices. Asset Price CF1 CF2 CF3 1 100 2 3 98 97 102 2 100 2 102 where CF1, CF2, CF3 refer to cash flows in year 1, 2, and 3, respectively. Assume there are no arbitrage opportunities, i.e. the no-arbitrage condition holds. Calculate the 1-year interest year for each period that you can lock in today. That is, calculate: a. the 1-year spot interest rate from 0 to 1 (y_0 (1)). [1 point] b. the 2-years spot interest rate from 0 to 2 (y_0 (2)). [1 point] C. the 3-years spot interest rate from 0 to 3 (y_0 (3)). [1 point] d. the 1-year forward rate from 1 to 2 (f_1 (1)). [2 points] e. the 1-year forward rate form 2 to 3 (f_2 (1)). [2 points] Hint: Start by deriving the 1-year, 2-year and 3-year spot rate. The following Table shows the cash flows of different fixed-income assets and their prices. Asset Price CF1 CF2 CF3 1 100 2 3 98 97 102 2 100 2 102 where CF1, CF2, CF3 refer to cash flows in year 1, 2, and 3, respectively. Assume there are no arbitrage opportunities, i.e. the no-arbitrage condition holds. Calculate the 1-year interest year for each period that you can lock in today. That is, calculate: a. the 1-year spot interest rate from 0 to 1 (y_0 (1)). [1 point] b. the 2-years spot interest rate from 0 to 2 (y_0 (2)). [1 point] C. the 3-years spot interest rate from 0 to 3 (y_0 (3)). [1 point] d. the 1-year forward rate from 1 to 2 (f_1 (1)). [2 points] e. the 1-year forward rate form 2 to 3 (f_2 (1)). [2 points] Hint: Start by deriving the 1-year, 2-year and 3-year spot rate.
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Related Book For
Stats Data and Models
ISBN: 978-0321986498
4th edition
Authors: Richard D. De Veaux, Paul D. Velleman, David E. Bock
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