Fixed Income

Below is the information from the par yield curve using on-the-run treasury bonds including one-year T-bill and T-notes with maturities in year 2 and 5. 2 3 4 Term to maturity in year YTM 1 2.0% 5 5.5% 3.0% (A) (5 points) Use linear exploration to estimate the yield for 3-year and 4-year maturities on the par curve. (B) (10 points) Construct the spot rate curve from par curve using the bootstrapping method. (C) (5 points) Find the 1-year forward rate 2 years from now, i.e., find f2, 3, based on the spot yield curve in B). (D) (5 points) Use the spot rate curve to price a treasury bond with 4.5% annual coupon and 4 years to maturity. Below is the information from the par yield curve using on-the-run treasury bonds including one-year T-bill and T-notes with maturities in year 2 and 5. 2 3 4 Term to maturity in year YTM 1 2.0% 5 5.5% 3.0% (A) (5 points) Use linear exploration to estimate the yield for 3-year and 4-year maturities on the par curve. (B) (10 points) Construct the spot rate curve from par curve using the bootstrapping method. (C) (5 points) Find the 1-year forward rate 2 years from now, i.e., find f2, 3, based on the spot yield curve in B). (D) (5 points) Use the spot rate curve to price a treasury bond with 4.5% annual coupon and 4 years to maturity