Question
Give and describe the no-arbitrage table to price a 2-year zero coupon loan 2 years from now, accounting for the actions of all parties. For
Give and describe the no-arbitrage table to price a 2-year zero coupon loan 2 years from now, accounting for the actions of all parties. For concreteness sake, use the par yield curve in question 1. What is the lockable, annualized rate for such a loan?
| Period | Maturity (yrs) | Yield (BEY %) | CF ($) |
| 1 | 0.5 | 0.5 | 10 |
| 2 | 1 | 2 | 20 |
| 3 | 1.5 | 3 | 100 |
| 4 | 2 | 4 | -30 |
| 5 | 2.5 | 5 | 50 |
| 6 | 3 | 6 | 50 |
| 7 | 3.5 | 7 | 100 |
| 8 | 4 | 7.5 | 200 |
| 9 | 4.5 | 8 | 0 |
| 10 | 5 | 8.4 | 1,000 |
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Finance For IT Decision Makers
Authors: Michael Blackstaff
3rd Edition
1780171226, 978-1780171227
