We are given the prices of four bonds with maturities and coupons shown in the Table below.
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Question:
We are given the prices of four bonds with maturities and coupons shown in the Table below.
Determine the zero rates R(T ) from the prices of these bonds. All bonds pay coupons every six months.
for this type of problem we assume that the zero rate R(T) is piece-wise constant on the time interval between the maturities of the
bonds used for bootstrapping.
For example, R(T) has the same value for all T : [0, 1Y ], another value for T : (1Y, 2Y ], and so on.
Bond principal Maturity Coupon Bond price
$100 1Y 1.25% 100.196
$100 2Y 2.25% 100.190
$100 5Y 2.50% 101.142
$100 10Y 3.15% 101.422
Related Book For
Financial Management for Public Health and Not for Profit Organizations
ISBN: 978-0132805667
4th edition
Authors: Steven A. Finkler, Thad Calabrese
Posted Date: