Reference no: EM133121482

1. Given the following zero coupon yields, solving for the forward rates: zt,t+0.5zt,t+1.00,0.5,1.0zt,t+1.5

  =  0.30%             

  =  0.47%                          f  = 

  =  0.64%                          f_0,1.0,1.5  =

z_t,t+2.0  =  0.92%                          f_0,1.5,2.0  =

z_t,t+2.5  =  1.05%                          f_0,2.0,2.5  =

z_t,t+3.0  =  1.20%                          f_0,2.5,3.0  =

z_t,t+3.5  =  1.30%                          f_0,3.0,3.5  =

z_t,t+4.0  =  1.43%                          f_0,3.5,4.0  =

z_t,t+4.5  =  1.62%                          f_0,4.0,4.5  =

z_t,t+5.0  =  1.79%                          f_0,4.5,5.0  =

2. Graphing the spot and the forward curve using the term as the x-axis for the spot curve and the start date of the forward rates as the x-axis for the forward curve.

3. Recalculating the spot and forward curves using the following data points:

z_t,t+0.5  =  2.00%             

z_t,t+1.0  =  1.80%                          f_0,0.5,1.0  = 

z_t,t+1.5  =  1.62%                          f_0,1.0,1.5  =

z_t,t+2.0  =  1.47%                          f_0,1.5,2.0  =

z_t,t+2.5  =  1.33%                          f_0,2.0,2.5  =

z_t,t+3.0  =  1.21%                          f_0,2.5,3.0  =

z_t,t+3.5  =  1.11%                          f_0,3.0,3.5  =

z_t,t+4.0  =  1.00%                          f_0,3.5,4.0  =

z_t,t+4.5  =  0.92%                          f_0,4.0,4.5  =

z_t,t+5.0  =  1.86%                          f_0,4.5,5.0  =

4. Explaining the difference in the spot and forward rates and the relationship between the spot and forward curves between the two sets of numbers.  Describing the causes for the differences in mathematical and intuitive terms.