Given below 1 year, 2 year , 3 Year Par rates

Note : Par rates meaning, coupon rates and Yields are t

Term Par Rates Spot rates

1 2% 2%
2 2.60%
3 2.90%
4 3.80%
Using boostrapping process, Compute one year, 2 year

2 Year Implied Spot Rate

Assuming par value of the bond as

Term CFS Spot rates

1 0.0260 2%
2 1.0260 2.60%
r(2)

3 Year Implied Spot Rate

Assuming par value of the bond as
Term CFS Spot rates
1 0.0290 2%
2 0.0290 2.60%
3 1.0290 2.91%

4 Year Implied Spot Rate

Assuming par value of the bond as

Term CFS Spot rates

1 0.0380 2%
2 0.0380 2.91%
3 0.0380 2.91%
4 1.0380 3.85%
 Par rates
rates and Yields are the same

pute one year, 2 year, 3 year spot rates , 4 Spot rates

PV of CFS
0.0254901960784314
0.974573016400156
1.000

1
PV of CFS
0.0284313725490196
0.0275464107949362
0.944024734952019
1.00000251829597

PV of CFS
0.0372549019607843
0.0358780581325029
0.0348619435647976
0.892369017672366
1.00036392133045
 Maturity Par Rate Spot Rate
1 2% 2%
2 6% 6.12%
3 11% 11.79%

Par Rate Curve

12%

10%

8%
Interest Rates

6%

4%

2%

0%
1 2 3
Years to Maturity
Notional
$ 100

Spot Rate Curve

14%
12%
10%
Interest Rates

8%
6%
4%
2%
0%
3 1 2 3
Years to Maturity
3
Cash Prices of 6 month and one year treasury bills
A 1.5 year bond that will pay coupons for $4 every
$ 94.84.
A 2 year bond that will pay coupons $ 5 every 6 m

Calculate the 6 month, 1 year, 1.5 y ears and 2 yea

using bootstrapping

Assuming Bond Face value / Redemption value

Bond Time to Semi Annual

Principal Maturity Coupon
bond

100 0.5 0
100 1 0
100 1.5 4
100 2 5
Time ==> 0 0.5 1
-94 100 0
-89 0 100
Price
-94.84 4 4
-97.12 5 5

0.79773626 0.84153846 0.89

11.299% 11.502% 11.653%

Check

Semi Annual
Bond Time to Coupon
Principal Maturity bond
100 0.5 0
100 1 0
100 1.5 4
100 2 5

0 0.5 1
 -94 100 0
-89 0 100
-94.84 4 4
-97.12 5 5

0.79773626 0.84153846 0.89

11.299% 11.502% 11.653%
ear treasury bills are given as $94.00 and $89.00
pons for $4 every six months currently sells for

ns $ 5 every 6 months currently sells $ 97.12

y ears and 2 years zero coupon rates (spot rates)

mption value 100

Bond Price

94
89
94.84
97.12
 1.5 2
0 0Zero Coupon Sec.
0 0Zero Coupon Sec.
104 0Coupon paying bond
5 105Coupon paying bond

0.94 0
12.375%=-LN(E28)/C21

Bond Price
94
89
94.84
97.12

1.5 2
 0 0
0 0
104 0
5 105

0.94 0
12.375%
Using Goal Seek
Face value 100
Using the below three Bonds calculate the Implied
Assume Semi annual coupon payment
Term Bond PV
0.50 100
1.00 100
1.50 100

Spot rate for 0.5

Years CFS
0.5 101.5

Spot rate for1 year

Semi annual coupon amt 2
Years CFS
0.5 2
1 102

Spot rate for 1.5 year

Years CFS
 0.5 2.5
1 2.5
1.5 102.5

Price /Period 0.5

-100 101.5
-100 2
-100 2.5

Using Linest Function

0.928139127812605 0.96107408
Reverse Orde 4.972% 3.970%
5.097% 4.050%
culate the Implied spot rates using boostrapping
yment
Par Rates/ Coupon Rates Spot rates
3% 3%
4%?
5%?

Spot Rates PV of CFS

3.023% 99.9999994

Spot rates PV of CFS

3.023% 1.97044334
4.050% 98.0295613
100.000005

Spot rates PV of CFs

 3.023% 2.46305
4.050% 2.40269
5.097% 95.13425
100.00

1 1.5 Bond Maturiting

0 0 0.5
102 0 1
2.5 102.5 1.5

0.985221674876848 0
2.978% Cont. Comp
3.0224999999999% Reverse OrdeConvert to Discreet int
Using YTM Rates

Years CFS Spot rates PV of CFs

 0.5 2.5 5.000% 2.43975
1 2.5 5.000% 2.38095
1.5 102.5 5.00% 95.26644
100.09

Maturiting
Years
Years
Years

t to Discreet int
Using Goal Seek
Given below 1 year, 2 year , 3 Year Par rates
Note : Par rates meaning, coupon rates and Yields are t

Term Par Rates Spot rates

1 2% 2%
2 2.60%
3 2.90%
4 3.80%
Using boostrapping process, Compute one year, 2 year

2 Year Implied Spot Rate

Assuming par value of the bond as

Term CFS Spot rates

1 0.0260 2%
2 1.0260 2.60%
r(2)

3 Year Implied Spot Rate

Assuming par value of the bond as
Term CFS Spot rates
1 0.0290 2%
2 0.0290 2.60%
3 1.0290 2.91%

3 Year Implied Spot Rate

Assuming par value of the bond as

Term CFS Spot rates

1 0.0380 2%
2 0.0380 2.91%
3 0.0380 2.91%
4 1.0380 3.85%
 Par rates
rates and Yields are the same

pute one year, 2 year, 3 year spot rates , 4 Spot rates

PV of CFS
0.0254901960784314
0.974573016400156
1.000

1
PV of CFS
0.0284313725490196
0.0275464107949362
0.944024734952019
1.00000251829597

PV of CFS
0.0372549019607843
0.0358780581325029
0.0348619435647976
0.892369017672366
1.00036392133045