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Suppose the current forward curve for one-year rates is the following: Time Period      Forward Rate f(0,1)                 2.5% f(1,1)                 3.6% f(2,1)                 4.5% f(3,1)                 5.1% Calculate the spot rates for 2-year, 3-years and 4-year spot rates                   Calculate the forward rates f(1, 2), f(1, 3),  and f(2, 2)                   3) Use the information to value a 4-year bond that pays 4.5% annual coupons.

Suppose the current forward curve for one-year rates is the following: Time Period      Forward Rate f(0,1)                 2.5% f(1,1)                 3.6% f(2,1)                 4.5% f(3,1)                 5.1% Calculate the spot rates for 2-year, 3-years and 4-year spot rates                   Calculate the forward rates f(1, 2), f(1, 3),  and f(2, 2)                   3) Use the information to value a 4-year bond that pays 4.5% annual coupons.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Suppose the current forward curve for one-year rates is the following:

Time Period      Forward Rate

f(0,1)                 2.5%

f(1,1)                 3.6%

f(2,1)                 4.5%

f(3,1)                 5.1%

  1. Calculate the spot rates for 2-year, 3-years and 4-year spot rates

 

 

 

 

 

 

 

 

 

  1. Calculate the forward rates f(1, 2), f(1, 3),  and f(2, 2)

 

 

 

 

 

 

 

 

 

3) Use the information to value a 4-year bond that pays 4.5% annual coupons.

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