Solution-How can you "fit" a spot-rate tree to these bond

How can you "fit" a spot-rate tree to these bond prices

Assignment Help Finance Basics

Reference no: EM131105105

Suppose at time t = 0, you are given four default-free zero-coupon bond prices P(t, T) with maturities from 1 to 4 years:
P(0, 1) = .94, P(0, 2) = .92, P(0, 3) = .87, P(0, 4) .80
(a) How can you "fit" a spot-rate tree to these bond prices? Discuss.
(b) Obtain a tree consistent with the term structure given above,
(c) What are the differences, if any, between the tree approaches in Questions (a) and (b)?

Reference no: EM131105105

Questions Cloud

Default risk of various municipal and corporate bonds : Agencies such as Moody's, Fitch, and Standard & Poor's rate the default risk of various municipal and corporate bonds. While their rating systems are proprietary, it is widely known that they rely on financial ratios as key inputs to their bond ra..

Explore the question of biological difference : Explore the question of biological difference and whether the concept of race has any scientific validity. Utilize the following resources.

Benefit of havaianas timeless design : Brand awareness- to maintain the recognition of the benefit of Havaiana's timeless design, increase the recall of the category need to have an ethical brand of thongs.

Question regarding the dividend payout ratio : The CFO wants to maintain a target capital structure of 42% debt and 58% equity, and it also wants to pay dividends of $500,000. If the company follows the residual dividend policy, how much income must it earn, and what will its dividend payout r..

How can you "fit" a spot-rate tree to these bond prices : (a) How can you "fit" a spot-rate tree to these bond prices? Discuss.(b) Obtain a tree consistent with the term structure given above,(c) What are the differences, if any, between the tree approaches in Questions (a) and (b)?

Find the overall noise figure of the system : find the overall noise figure of the system.

The company uses an annual holding cost rate : Kenichi Kaneko is the manager of a production department which uses 400 boxes of rivets per year. To hold down his inventory level, Kenichi has been ordering only 50 boxes each time.

Compute the economic order quantity : Compute the Economic order quantity, Number of orders per year, Cycle length (i.e., number of weeks between consecutive orders) and Average inventory level.

Explain the role of all of those terms within the context : Explain the definition and role of each of the following components of probability sampling: element, population, study population, random selection, sampling unit, statistic, and parameter.

User Account

All Pages

How can you "fit" a spot-rate tree to these bond prices

Reference no: EM131105105

Reference no: EM131105105

Questions Cloud

Reviews

Write a Review

Finance Basics Questions & Answers

Financial reporting and analysis

A report on financial accounting

Describe the types of financial ratios

Differences between sole proprietorship and corporation

Prepare a cash budget statement

What are the implied interest rates

State pricing theory and no-arbitrage pricing theory

Small business administration

Effect of financial leverage

Evaluate the basis for the payment to the lender

Importance of opps, ipps, mpfs and dmepos

Time value of money

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT