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1. The following table of spot interest rates is assumed to be the prevailing term structure of interest rates. Spot Rate 8.0% 8.9% 9.4% 9.6%
1. The following table of spot interest rates is assumed to be the prevailing term structure of interest rates. Spot Rate 8.0% 8.9% 9.4% 9.6% 9.9% 10.0% Year 1 2 4 5 6 Assuming that bonds pay interest annually, show that the par yield for year t is given by a. 1- DF par AN Where DFt is the discount factor (present value factor), and ANt is the annuity factor for year t. Note ANt that can be calculated as follows: 17 b. Calculate the par yields for all years
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