Baran

 

The spot rates associated with the discount factors of the previous problem are closest to:

A) 4.87%; 6.23%.

B) 5.48%; 6.78%.

C) 7.10%; 8.23%.

D) 6.26%; 7.05%.

Baran

 

The correct answer is D

 

We must calculate the discount factor for the December bond first. This is done by dividing today’s price by the final payment’s par + coupon:

 (99 + 15/32)/(100 + 6/2) = 0.9657. The 12-month discount factor d₂ solves the following equation: [(7/2)(0.9657)]+[(100+7/2)(d₂)] = 98+(27.5/32); d₂=0.9225.

Baran

 

2、Use the Treasury bond prices given below for the following four problems. Assume the prices are for settlement on June 1, 2005, today’s date. Assume semiannual coupon payments:

Coupon	Maturity	Price
6.00%	12/1/2005	99–15
7.00%	6/1/2006	98–27+
8.00%	12/1/2006	101–29
9.00%	6/1/2007	102–9

The discount factors associated with the bonds maturing in December 2005 and June 2006, respectively, are closest to:

A) 0.9587; 0.9157.

B) 0.9458; 0.9013.

C) 0.9319; 0.8769.

D) 0.9657; 0.9225.

Baran

 The correct answer is C

 

Baran

The correct answer is C

 

Baran

 

Given the spot rates for the 6-month and 1-year maturing bond, the 6-month forward rate 6 months from now is closest to:

A) 5.86%.

B) 6.04%.

C) 6.54%.

D) 7.28%.

Baran

 

The correct answer is D

 

Baran

 

The spot rates associated with the discount factors determined in the previous question are closest to:

A) 2.25%/4.87%.

B) 1.82%/7.56%.

C) 3.26%/5.87%.

D) 2.88%/4.70%.

Baran

 

The correct answer is B

We must calculate the 6-month discount factor first. This is done by dividing today’s price by the final payment’s par + coupon: