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QUESTION
Table 1: C011 0 on Rates and Asked Prices of Four US Treasury bonds: Cou - on Rate Asked Price 11/30/2018 1.25 99.5313 4/30/2019 1 .625 99.375...
Problem 5
Continue to work with the bonds from Problem 4. Also use your answers to parts a, b and c of Problem 4 to answer the following questions:
- Find four first rates of the term structure of interest rates. Use bootstrapping method.
- Graph the first four rates of the term structure (annualized).
- Is term structure increasing or decreasing? Please provide the explanation for the main reason for the term structure being increasing or decreasing.
- Suppose that US Treasury plans to issue two-year coupon bonds, which pay semi-annual coupons. The coupon rate is set at 3% per year. What is the price of these bonds?
