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A Rs.1000 Treasury Bond Expires in 5 Years. It Pays A Coupon Rate of 10.5%. If The Market Price of This Bond Is 1078.8, What Is The Ytm?

The document provides the prices of various US Treasury securities with maturities between February 2000 and February 2006. It asks to construct the implied zero curve as of the given settlement date using these prices. The zero curve shows the yields on zero-coupon bonds for different maturities on the settlement date.

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Sohom Karmakar
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158 views

A Rs.1000 Treasury Bond Expires in 5 Years. It Pays A Coupon Rate of 10.5%. If The Market Price of This Bond Is 1078.8, What Is The Ytm?

The document provides the prices of various US Treasury securities with maturities between February 2000 and February 2006. It asks to construct the implied zero curve as of the given settlement date using these prices. The zero curve shows the yields on zero-coupon bonds for different maturities on the settlement date.

Uploaded by

Sohom Karmakar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
You are on page 1/ 17

A Rs.

1000 treasury bond expires


in 5 years. It pays a coupon rate
of 10.5%. If the market price of
this bond is 1078.8, what is the
YTM?

0
1
2
3
4
5
IRR

-1078.8
105
105
105
105
1105
8.500% irr
irr same as ytm for annualized cfs

10 yr Ma
Rate = 7
Rs.950,
Coupon
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

-950 IRR
35 BEY
35 EAY
35 CY
35
35
35
35
35
35
35
35
35
35
35
35
35
35
35
35
1035

10 yr Maturity, Coupon
Rate = 7%, Price =
Rs.950, Semiannual
Coupon
3.8635%
7.727%
7.876%

Term Structure of Interest Rates


Maturity
0
1
2
3
4
5
6
7
8
9
10

1
1
1
1
1
1
1
1
1
1

Zero Price
1
0.941
0.885
0.830
0.777
0.726
0.677
0.630
0.585
0.542
0.502

Zero Yields
(discrete)

6.27%
6.30%
6.41%
6.51%
6.61%
6.72%
6.82%
6.93%
7.04%
7.13%

period Ending
Forward Rates
(discrete)

=(E6)^(-1/C6)-1

6.270% =E5/E6-1
6.328%
6.627%
6.821%
7.025%
7.238%
7.460%
7.692%
7.934%
7.968%

RATE

6.27%
6.30%
6.41%
6.51%
6.61%
6.72%
6.82%
6.93%
7.04%
7.13%

IRR

6.27%
6.30%
6.41%
6.51%
6.61%
6.72%
6.82%
6.93%
7.04%
7.13%

-0.941
-0.885
-0.83
-0.777
-0.726
-0.677
-0.63
-0.585
-0.542
-0.502

1
1
0
0
0
0
0
0
0
0
0

2
0
1
0
0
0
0
0
0
0
0

3 4 5 6 7 8 9
0 0 0 0 0 0 0
1
0
0
0
0
0
0
0

1
0
0
0
0
0
0

1
0
0
0
0
0

1
0
0
0
0

1
0 1
0 0 1
0 0 0

10
0

CCIL ZCYC
Maturity (Y
0
1
2
3
4
5
6
7
8
9
10

Zero YieldsForward Rates


(continuous(continuous)

41537 Zero
1
8.7
8.37
8.31
8.34
8.4
8.45
8.51
8.55
8.59
8.62

Term Structure of Interest Rates


Maturity
1
2
3
4
5
6
7
8
9
10

Zero Price
1
0.941
0.885
0.830
0.777
0.726
0.677
0.630
0.585
0.542
0.502

Zero Yields
(continuous)

Forward Rates
(continuous)

=-LN(E6)/C6

Zero Yields
(discrete)

=-LN(E6/E5)

Forward Rates

=(E6)^-(1/C6)-1

Forward Rates
(discrete)

=E5/E6-1

Bond
6-month Zero
1 year Zero
18 month 8% coupon
24-month 9% coupon

Price
0.95959
0.91851
0.98857
1.00127

B0.5
B1.0
B 1.5
B 2.0
t

1
0
0.04
0.045

Z
Yt
0.5
134.2181
1
10.27144
1.5
4.379022
2
2.614803
CF of Bond
0
0
0
1
0
0
0.04
1.04
0
0.045
0.045
1.045

0.95959
0.91851
0.878313
0.839456

=(D6-(0.04*H4+0.04*H5))/1.04
=(D7-(0.045*(H4+H5+M6)))/1.045

0.878313
0.839456

0.085997
0.08872
0.090353
0.091443
Z
8.60%
8.87%
8.02%
7.65%

=MMULT(MINVERSE(D15:G18),D4:D7)

Question1

The prices of various Treasury securities are furnished below. a)Based on this information, construct the im
Settlement Date:

10/9/1999
In decimals

Maturity
2/15/2000
8/15/2000
2/15/2001
8/15/2001
2/15/2002
8/15/2002
2/15/2003
8/15/2003
2/15/2004
8/15/2004
2/15/2005
8/15/2005
2/15/2006

Coupon
5.000%
8.000%
8.250%
8.750%
11.750%
7.875%
14.250%
6.250%
6.250%
5.750%
5.875%
7.250%
7.500%

Price
100.16
103.00
105.31
107.91
116.50
109.31
130.31
106.28
107.06
105.66
106.69
113.75
115.91

2/15/2000
102.5
4
4.125
4.375
5.875
3.9375
7.125
3.125
3.125
2.875
2.9375
3.625
3.75

8/15/2000
104
4.125
4.375
5.875
3.9375
7.125
3.125
3.125
2.875
2.9375
3.625
3.75

INVERTED CASHLOWS MATRIX


2/15/2000
2/15/2000
0.009756
8/15/2000
0.000375
2/15/2001
0.000372
8/15/2001
0.000378
2/15/2002
0.000479
8/15/2002
0.000309
2/15/2003
0.000522
8/15/2003
0.000222
2/15/2004
0.000215
8/15/2004
0.000192

8/15/2000
0.000000
0.009615
0.000381
0.000387
0.000491
0.000317
0.000535
0.000227
0.000221
0.000197

# days
accrued

184
184
184
184
184
184
184
184
184
184
184
184
184

Accrued
Interest
0.7473
1.1957
1.2330
1.3077
1.7561
1.1770
2.1298
0.9341
0.9341
0.8594
0.8781
1.0836
1.1209

2/15/2001
###
104.125
4.375
5.875
3.9375
7.125
3.125
3.125
2.875
2.9375
3.625
3.75

8/15/2001
104.375
5.875
3.9375
7.125
3.125
3.125
2.875
2.9375
3.625
3.75

2/15/2002
###
###
###
105.875
3.9375
7.125
3.125
3.125
2.875
2.9375
3.625
3.75

2/15/2001
0.000000
0.000000
0.009604
0.000403
0.000511
0.000329
0.000556
0.000237
0.000229
0.000205

8/15/2001
0.000000
0.000000
0.000000
0.009581
0.000532
0.000343
0.000579
0.000246
0.000239
0.000214

2/15/2002
0.000000
0.000000
0.000000
0.000000
0.009445
0.000358
0.000604
0.000257
0.000249
0.000223

Basis
55
55
55
55
55
55
55
55
55
55
55
55
55

CASHFLOWS
2/15/2000
8/15/2000
2/15/2001
8/15/2001
2/15/2002
8/15/2002
2/15/2003
8/15/2003
2/15/2004
8/15/2004
2/15/2005
8/15/2005
2/15/2006

2/15/2005
8/15/2005
2/15/2006

0.000191
0.000227
0.000227

0.000196
0.000233
0.000232

0.000204
0.000242
0.000242

0.000212
0.000252
0.000252

Zero
Bid
0.9771
0.9528
0.9349
0.9137
0.8907
0.8748
0.8477
0.8369
0.8191
0.8021
0.7839
0.7607
0.7415

Spot
Bid
3.33%
2.89%
2.51%
2.47%
2.49%
2.37%
2.49%
2.34%
2.32%
2.30%
2.30%
2.37%
2.38%

0.07
0.06
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05

0.000221
0.000263
0.000263

a.
ZERO CURVE
# Periods
2/15/2000
8/15/2000
2/15/2001
8/15/2001
2/15/2002
8/15/2002
2/15/2003
8/15/2003
2/15/2004
8/15/2004
2/15/2005
8/15/2005
2/15/2006

0.71
1.70
2.71
3.70
4.71
5.70
6.71
7.70
8.70
9.70
10.71
11.70
12.71

=MMULT(B39:N51,G7:G19)
=((1/C57)^(1/B57)-1)*2

3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
-

2.00

ormation, construct the implied zero curve as of the settlement date out to February 15th 2006.
In decimals
Bid dirty
100.9035
104.1957
106.5455
109.2140
118.2561
110.4895
132.4423
107.2154
107.9966
106.5156
107.5656
114.8336
117.0272

Price avg of bid ask instead of last quoted because of non synchronization. Here bid price is t

8/15/2002
103.9375
7.125
3.125
3.125
2.875
2.9375
3.625
3.75

2/15/2003
107.125
3.125
3.125
2.875
2.9375
3.625
3.75

8/15/2003
103.125
3.125
2.875
2.9375
3.625
3.75

2/15/2004
103.125
2.875
2.9375
3.625
3.75

8/15/2004
102.875
2.9375
3.625
3.75

2/15/2005
102.9375
3.625
3.75

8/15/2002
0.000000
0.000000
0.000000
0.000000
0.000000
0.009621
0.000640
0.000272
0.000264
0.000236

2/15/2003
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.009335
0.000283
0.000274
0.000245

8/15/2003
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.009697
0.000294
0.000263

2/15/2004
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.009697
0.000271

8/15/2004
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.009721

2/15/2005
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000

0.000234
0.000279
0.000278

0.000243
0.000290
0.000289

0.000261
0.000311
0.000310

0.000269
0.000320
0.000319

0.000277
0.000330
0.000329

0.009715
0.000340
0.000339

Bid
3.50%
3.00%
2.50%
Bid

2.00%
1.50%
1.00%
0.50%
0.00%
-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

15th 2006.

on synchronization. Here bid price is taken

8/15/2005
103.625
3.75

2/15/2006
103.75

8/15/2005
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000

2/15/2006
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000
0.000000

0.000000
0.009650
0.000349

Bid

0.000000
0.000000
0.009639

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