A
Avviey
Member
Hi,
Part ii) of this question required you to estimate f and f*, so I wonder
1) how is f=7.73% generated? The average of 7.75% and 7.71% of the 1 year and 5 year spot rates respectively?
2) it says for Bond C: 10 [(1-e^-5*0.0773)/(e^0.0773-1)] +..... = 111.35. Where does this bold part come from? i know 0.0773 is the constant instantaneous forward rate for the period up to 5 years.
Part iv), the answer says " spot rate will be the same as forward rate during the first 5 years". i dont know the reason behind it.
I'd appreciate alot if someone can help together with my previous query.
Many thanks.
Part ii) of this question required you to estimate f and f*, so I wonder
1) how is f=7.73% generated? The average of 7.75% and 7.71% of the 1 year and 5 year spot rates respectively?
2) it says for Bond C: 10 [(1-e^-5*0.0773)/(e^0.0773-1)] +..... = 111.35. Where does this bold part come from? i know 0.0773 is the constant instantaneous forward rate for the period up to 5 years.
Part iv), the answer says " spot rate will be the same as forward rate during the first 5 years". i dont know the reason behind it.
I'd appreciate alot if someone can help together with my previous query.
Many thanks.