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Measuring term structure* The following table shows the prices of a sample of Narnian Treasury strips in December 2018. Each strip makes a single payment
Measuring term structure* The following table shows the prices of a sample of Narnian Treasury strips in December 2018. Each strip makes a single payment of $1,000 at maturity. a. Calculate the annually compounded, spot interest rate for each year. b. Is the term structure upward- or downward-sloping or flat? c. Would you expect the yield on a coupon bond maturing in December 2023 to be higher or lower than the yield on the 2020 strip? Maturity Price (%) December 2020 90.703% December 2021 85.892 December 2022 81.491 December 2023 77.243
Measuring term structure* The following table shows the prices of a sample of Narnian Treasury strips in December
2018. Each strip makes a single payment of $1,000 at maturity.
a. Calculate the annually compounded, spot interest rate for each year.
b. Is the term structure upward- or downward-sloping or flat?
c. Would you expect the yield on a coupon bond maturing in December 2023 to be higher or lower than the yield on
the 2020 strip?
Maturity
Price (%)
December 2020 90.703%
December 2021 85.892
December 2022 81.491
December 2023 77.243
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