Question

Using bootstrap method calculate zero coupon yield curve from coupon bearing bonds. Coupons are paid every half year. They are shown annualized in percent. Use continuous compounding and then semiannual compounding. Plot two yield curves for continuous and semiannual compounding

Bond Principal Maturity (years) Coupon Bond Price

100 0.25 0 99

100 0.50 0 98.25

100 1.00 0 98

100 1.50 3 98.25

100 2.00 4 98.125

Answer 1