Question
Use this list of Treasury bond prices as of February 15, 2001 to answer the following questions. Coupon 8s 0s 6s 10s Maturity 8/15/01 8/15/02
Use this list of Treasury bond prices as of February 15, 2001 to answer the following questions.
Coupon | 8s | 0s | 6s | 10s |
Maturity | 8/15/01 | 8/15/02 | 8/15/02 | 2/15/02 |
Quote | 101 | 91.5 | 100 | ? |
(a) Derive the 6-month, 1-year and 1.5-year discount factors using the 8s, 0s and 6s.
(b) What is the arbitrage-free price for the 10s given the discount factors from (a).
(c) Compute the 6-month, 1-year and 1.5-year par yields.
(d) Based on the no-arbitrage principle, compute the forward rates from 6 months to 1.5 years and 1 year to 1.5 years.
(e) Construct a synthetic forward loan from 6 months to 1.5 years using the 8s and 0s. Solve for the positions in the bonds and verify that the loan rate equals the forward rate of the same term.
(f) Construct a synthetic forward loan from 1 year to 1.5 years using the 8s, 0s and 6s. Solve for the positions in the bonds and verify that the loan rate equals the forward rate of the same term.
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