All the bonds here have semi-annual coupons. Question 3 You have information on the following...
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All the bonds here have semi-annual coupons.
Question 3
You have information on the following on-the-run Treasury securities: 6-month T-bill, price = $95.694 per $100 par value; 1-year T-bill, price = 92.902 per $100 par value.
Also, information on the following off-the-run Treasury securities: T-note, CR = 6%, FV = $100,000, maturity = 18 months, price = 98-243; T-bond, CR = 7%, FV = $100,000, maturity = 2 years, price = 101-12+.
a) Verify that the spot rates are as follows: z1 = 4.50%, z2 = 3.75%, z3 = 3.42%, z4 = 3.09%.
b) Verify that the implied forward rates are as follows: f1 = 3.01%, f2 = 2.76%, f3 = 2.11%.
c) Verify that if a forward contract is to deliver a 1.5-year T-note with FV $100 and CR 4%, to be delivered in half year (i.e. 1 period from now), the delivery price is $98.20.
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