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Three government bons are in issue, bonds A, B and C each bond has a par...

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Finance

Three government bons are in issue, bonds A, B and C each bondhas a par value of K100 and is redeemable at the par value. Thefollowing additional information ia available in respect of eachbond.

Bond Maturity term Annual coupon rate Price

Bond A 1 year 3.5% K99.90

Bond B 2 years 3.75% K98.75

Bond C 3 Years 3.80 % K97.80

a) by bootstrapping the above coupon paying bonds, estimate theone year , two year and three year spot rates and state the shapeof the resulting spot yield curve.

b) Calculate the yield to maturity of each of the bond B and Cand discuss the relationships between the spot rates and yields tomaturity for both bonds.

Answer & Explanation Solved by verified expert
3.9 Ratings (427 Votes)
The spot rate is the quote at the time the bond    See Answer
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