Question
You must estimate the yield curve for Neverland, a faraway country in the east. To this end you obtain the prices of five Nederland Treasury
You must estimate the yield curve for Neverland, a faraway country in the east. To this end you obtain the prices of five Nederland Treasury Strips (zero coupon bonds) with maturities of 1, 2, 3, 5 and 10 years, respectively. Their prices, reported as a percentage of their face value, are 90.91% for one-year strip, 84.17% for 2-year strip, 79.38% for 3-year strip, 74.73% for 5-year strip and 61.39% for 10-year strip.
a)Find the 1-year, 2-year, 3-year, 5-year and 10-year interest rate
b)Based on your findings above, sketch the yield curve for Neverland government bonds
c)What is the value of a 3-year, 15% annual coupon government bond?
d)What is the yield-to-maturity of this bond? (Do not approximate)
Many thanks.
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