1. Using only the cash flows and prices of the bonds above estimate the maximum and minimum boundaries for the price of a 4 year 2.5% annual coupon Treasury Note maturing on 2/15/2020. (Assume today is 2/15/2016)
2. Calculate the discount factors implied by the market prices above.
Please show all work.
The following Treasury Note prices have been observed for annual coupon paying bonds in the market as of 2/15/2016.
|
Date
|
Coupon Rate
|
Price in Decimals
|
|
2/15/2017
|
3.5%
|
100.00000
|
|
2/15/2018
|
3.5%
|
100.47299
|
|
2/15/2019
|
3.5%
|
101.39991
|
|
2/15/2020
|
3.5%
|
102.54795
|
|
2/15/2021
|
3.5%
|
103.97606
|
|
2/15/2022
|
3.5%
|
105.22412
|