The function s(t) = 0.15 − 0.03 e− t/4 provides the term structure of effective annual rates of zero coupon bonds of maturity t, with t in years. Find the following: (a) The effective annual rate of a 3 year zero coupon bond. (b) The 2-year forward effective annual rate for a one year period. (c) The forward effective annual rate for a one year period, 3 years forward. (d) The 3-year forward effective annual rate for a 3 month period. (e) The forward effective annual rate for a one day period, 3 years forward (the “overnight” rate). (Use 1/365 for a one-day period.)
The function s(t) = 0.15 − 0.03 e− t/4 provides the term structure of effective annual rates of zero coupon bonds of maturity t, with t in years. Find the following: (a) The effective annual rate of a 3 year zero coupon bond. (b) The 2-year forward effective annual rate for a one year period. (c) The forward effective annual rate for a one year period, 3 years forward. (d) The 3-year forward effective annual rate for a 3 month period. (e) The forward effective annual rate for a one day period, 3 years forward (the “overnight” rate). (Use 1/365 for a one-day period.)
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
Problem 1PS
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The function s(t) = 0.15 − 0.03 e− t/4 provides the term structure of effective annual rates of zero coupon bonds of maturity t, with t in years. Find the following:
(a) The effective annual rate of a 3 year zero coupon bond.
(b) The 2-year forward effective annual rate for a one year period.
(c) The forward effective annual rate for a one year period, 3 years forward.
(d) The 3-year forward effective annual rate for a 3 month period.
(e) The forward effective annual rate for a one day period, 3 years forward (the “overnight” rate).
(Use 1/365 for a one-day period.)
Answer as a percentage,
correct to 2 decimals.
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