Question

1) Here is a table of zero coupon bond prices: 3 year 2 year Maturity: 1 year 0.99010 0.0.94929 0.97066 Price: a) What are the corresponding spot rates (lyr, 2yr, 3yr)? b) What is the 1 year rate deferred 1 year F1,21? c) What is the 1 year rate deferred 2 years F2,3) d) What is the 2 year rate deferred 1 year Fi1,31?

Answer 1

1.
1 year rate=1/0.991-1=0.9082%

2 year rate=(1/0.97066)^(1/2)-1=1.5001%

3 year rate=(1/0.94929)^(1/3)-1=1.7498%

2.
=(1+2 year)^2/(1+1 year)^1-1
=P1/P2-1
=0.99010/0.97066-1
=2.0028%

3.
=(1+3 year)^3/(1+2 year)^2-1
=P2/P3-1
=0.97066/0.94929-1
=2.2512%

4.
=((1+3 year)^3/(1+1 year)^1)^(1/2)-1
=(P1/P3)^(1/2)-1
=(0.99010/0.94929)^(1/2)-1
=2.1269%