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Question 1. Zero coupon yields for maturities of 1-3 are y1 = 5%, y2 = 6.75%, y3 = 6%. Find the one-year forward rates f1
| Question 1. Zero coupon yields for maturities of 1-3 are y1 = 5%, y2 = 6.75%, y3 = 6%. Find the one-year forward rates f1 (the one-year rate from year 1 to year 2) and f2 (the one-year rate from year 2 to year 3). | ||||||||
| Zero coupon yields | Forward rates | |||||||
| y1 | 5.00% | f1 | ||||||
| y2 | 6.75% | f2 | ||||||
| y3 | 6.00% | |||||||
| Question 2. Recall that the par yield is the coupon rate that ensures that a bond sells at par. Using the zero coupon yields given in Question 14, find the par yield for a maturity of 3 years. (Hint: use Goal Seek) | ||||||||
| Zero coupon yields | Years | |||||||
| Face value of 3-year bond: | $100.00 | y1 | 5.00% | 1 | 2 | 3 | ||
| Par yield | y2 | 6.75% | Cash flows | Sum | ||||
| Gap | $100.00 | y3 | 6.00% | Discounted cash flows | ||||
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School Finance And Business Management Optimizing Fiscal Facility And Human Resources
Authors: Craig A. Schilling, Daniel R. Tomal
2nd Edition
1475844026, 978-1475844023
