Today is may 15 2000a compute bootstrap the discount curve, Ask an Expert

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Today is May 15, 2000.

(a) Compute (bootstrap) the discount curve Z(0, T) for T =6 month, 1 year, and 1.5 years from the following data:

• A 6-month zero coupon bond priced at $96.80 (issued 5/15/2000)

• A 1-year note with 5.75% coupon priced at $99.56 (issued 5/15/1998)

• A 1.5-year note with 7.5% coupon priced at $100.86 (issued 11/15/1991)

(b) Once you get the discount curve Z(0, T) you take another look at the data and you find the following 1-year bonds:

i. A 1-year note with 8.00% coupon (semi-annual) priced at $101.13 (issued 5/15/1991)

ii. A 1-year bond with 13.13% coupon (semi-annual) priced at $106.60 (issued 4/2/1981)

Compute the prices for these bonds with the discounts you found. Are the prices the same as what the market says? Is there an arbitrage opportunity? Why?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92790835

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