Use this list of Treasury bond prices as of February 15

Question # 00460831 Posted By: rey_writer Updated on: 01/12/2017 01:09 AM Due on: 01/12/2017
Subject Finance Topic Finance Tutorials:
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Use this list of Treasury bond prices as of February 15, 2001 to answer the following questions.

Coupon

8s

0s

6s

10s

Maturity

8/15/01

8/15/02

8/15/02

2/15/02

Quote

101

91.5

100

?

(a) Derive the 6-month, 1-year and 1.5-year discount factors using the 8s, 0s and 6s.

(b) What is the arbitrage-free price for the 10s given the discount factors from (a).

(c) Compute the 6-month, 1-year and 1.5-year par yields.

(d) Based on the no-arbitrage principle, compute the forward rates from 6 months to 1.5 years and 1 year to 1.5 years.

(e) Construct a synthetic forward loan from 6 months to 1.5 years using the 8s and 0s. Solve for the positions in the bonds and verify that the loan rate equals the forward rate of the same term.

(f) Construct a synthetic forward loan from 1 year to 1.5 years using the 8s, 0s and 6s. Solve for the positions in the bonds and verify that the loan rate equals the forward rate of the same term.

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