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Exercise 1.1 - Term Structure Construction For the Treasury curve with the data given below. Price Coupon Cpn Freq 100 0.21% 100 0.23% 100 0.28%

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Exercise 1.1 - Term Structure Construction For the Treasury curve with the data given below. Price Coupon Cpn Freq 100 0.21% 100 0.23% 100 0.28% 100 0.48% 100 0.71% 100 0.97% 100 1.36% 100 1.45% Tenor 1 2 3 5 7 10 20 30 Years Constant Beg/End Years Linear Begin Linear End a) Estimate the forward rates assuming they are piecewise constant. b) Estimate the forward rates assuming they are piecewise linear. Ending forward rate for interval equals the starting forward rate for next interval. Functional form of the forward rates are given below 0-1 FWD1 0-1 FWD1 FWD1 1-2 FWD2 1-2 FWD1 FWD2 2-3 FWD3 2-3 FWD2 FWD3 2 2 2 2 2 3-5 FWD4 3-5 FWD3 FWD4 2 2 2 5-7 FWD5 5-7 FWD4 FWD5 7-10 FWD6 7-10 FWD5 FWD6 10-20 20-30 FWD7 10-20 FWD6 FWD7 Can use excel with the solver function for this exercise. FWD8 20-30 FWD7 FWD8 Exercise 1.1 - Term Structure Construction For the Treasury curve with the data given below. Price Coupon Cpn Freq 100 0.21% 100 0.23% 100 0.28% 100 0.48% 100 0.71% 100 0.97% 100 1.36% 100 1.45% Tenor 1 2 3 5 7 10 20 30 Years Constant Beg/End Years Linear Begin Linear End a) Estimate the forward rates assuming they are piecewise constant. b) Estimate the forward rates assuming they are piecewise linear. Ending forward rate for interval equals the starting forward rate for next interval. Functional form of the forward rates are given below 0-1 FWD1 0-1 FWD1 FWD1 1-2 FWD2 1-2 FWD1 FWD2 2-3 FWD3 2-3 FWD2 FWD3 2 2 2 2 2 3-5 FWD4 3-5 FWD3 FWD4 2 2 2 5-7 FWD5 5-7 FWD4 FWD5 7-10 FWD6 7-10 FWD5 FWD6 10-20 20-30 FWD7 10-20 FWD6 FWD7 Can use excel with the solver function for this exercise. FWD8 20-30 FWD7 FWD8

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