Three government bonds are in issue, bond A, bond B and bond C. each bond has a par value of K100 and is redeemable at the par value. The following additional information is available in respect of each bond: Bond Maturity term Annual coupon rate Price Bond A 1 year 5% K101.25 Bond B 2 years 6% K103.50 Bond C 3 years 7% K104.25 By bootstrapping the above coupon paying bonds, estimate the one year, two year and three year spot rates and state the shape of the resulting spot yield curve.
Three government bonds are in issue, bond A, bond B and bond C. each bond has a par value of K100 and is redeemable at the par value. The following additional information is available in respect of each bond:
|
Bond |
Maturity term |
Annual coupon rate |
Price |
|
Bond A |
1 year |
5% |
K101.25 |
|
Bond B |
2 years |
6% |
K103.50 |
|
Bond C |
3 years |
7% |
K104.25 |
By bootstrapping the above coupon paying bonds, estimate the one year, two year and three year spot rates and state the shape of the resulting spot yield curve.
We have all the information about three bonds. We have to calculate the spot rates for year 1, 2 and 3 and then state the shape of the resulting spot yield curve.
Price of a bond is present value of all the coupon payments and principal repayment on maturity.
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