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1. Given the benchmark annual Par Curve shown below, calculate the spot and forward rates for...

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Finance

1. Given the benchmark annual Par Curve shown below, calculatethe spot and forward rates for each period.
Maturity.

MaturityPar Rate
13%
24%
35%

a. Calculate the spot and forward rates for each period.

b. Calculate the 1-year forward rates for each period.

c. Use the forward rates calculated above to value a 3-year 1%annual coupon bond from the same issuer. Show the expected value ofthe bond at the end of each year in your calculation

Answer & Explanation Solved by verified expert
4.4 Ratings (752 Votes)
a Spot rate calculation For t 1 the spot rate par yield 3 For t 2 If we take a 2 year 1000 bond with coupon of 4 same as par yield for t 2 then coupon payment 41000 40 1000 401s11    See Answer
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Transcribed Image Text

1. Given the benchmark annual Par Curve shown below, calculatethe spot and forward rates for each period.Maturity.MaturityPar Rate13%24%35%a. Calculate the spot and forward rates for each period.b. Calculate the 1-year forward rates for each period.c. Use the forward rates calculated above to value a 3-year 1%annual coupon bond from the same issuer. Show the expected value ofthe bond at the end of each year in your calculation

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