Question

# (1) Par Curve and Interpolation: - Calculate the 3y, 4y and 7y Treasury Yields using linear...

(1) Par Curve and Interpolation:

- Calculate the 3y, 4y and 7y Treasury Yields using linear interpolation (ensure formulas are in the cells)

 PAR Curve Term Yield Bond Px 1 13.00% \$100.000 2 14.00% \$100.000 3 4 5 29.00% \$100.000 7 10 70.00% \$100.000

Formula for the linear interpolation:

The formula is y = y1 + ((x - x1) / (x2 - x1)) * (y2 - y1),

where x is the known value,

y is the unknown value,

x1 and y1 are the coordinates that are below the known x value,

x2 and y2 are the coordinates that are above the x value.

For 3y Treasury yield:

x1 = 2

y1 = 14%

x2 = 5

y2 = 29%

x =3

y= ?

Putting in above formula:

y = 14% + ((3-2) / (5-2)) * (29%-14%) = 19%

For 4y Treasury yield:

x1 = 2

y1 = 14%

x2 = 5

y2 = 29%

x =4

y= ?

Putting in above formula:

y = 14% + ((4-2) / (5-2)) * (29%-14%) = 19%

For 7y Treasury yield:

x1 = 5

y1 = 29%

x2 = 10

y2 = 70%

x =7

y= ?

Putting in above formula:

y = 29% + ((7-5) / (10-5)) * (70%-29%) = 45.40%

 Year Yield 1 13% 2 14% 3 19% 4 24% 5 29% 7 45.4% 10 70%

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