Question

How did you calculate spot rates? I know that spot rate is the sum of yield...

How did you calculate spot rates? I know that spot rate is the sum of yield curve and rating, but I have to gues ten year period, from now on or I should use the historic data from 2010 to 2020

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Spot rate is the rate rate at which immediate transaction happens. This is influenced by the expectations of future cash-flows or returns and their movements. The spot rate is calculated by finding the discount rate that makes the present value (PV) of a zero-coupon bond equal to its price over its maturity and hence are estimated basis future interest rate assumptions.

Thus, to calculate spot rate, you have to use the estimates of future period (or say next ten years) and not basis historics data of last 10 years.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You are given the following yield curve (spot rates at different maturities) Note : All rates...
You are given the following yield curve (spot rates at different maturities) Note : All rates are semiannuallycompounded.  The annual coupon rate of a one-year bond is 6%. The coupons are paid semiannually and the face value of the bond is $100. The price of this bond is____________ (take three digits after the decimal point). The forward rate at which one can lend or borrow money 0.5 year from today for a period of 0.5 year (0.5f0.5) is__________ %( take three...
(a)        You are given the spot rates  s5 = 3%  and  s10 = 5% .   If these are the only...
(a)        You are given the spot rates  s5 = 3%  and  s10 = 5% .   If these are the only spot rates that you know, would you say that the yield curve is normal, flat, or inverted?  Explain. (Note:  A correct answer without a correct explanation earns no credit.) (b)       With the information in part (a), calculate the forward rate 5 f5 . (c)        Assume a perfectly flat yield curve, i.e., st is the same constant value, say c , for all t.  Show mathematically that the forward rate...
Consider the following spot and forward rates: 1 year spot rate = 4% 3 year spot...
Consider the following spot and forward rates: 1 year spot rate = 4% 3 year spot rate = 5% 4 year forward rate 1 year from now= 6% Calculate: 2 year forward rate 1 year from now? 2 year forward rate 3 year Hint: Draw the timeline, plot the given rates to the corresponding intervals and calculate the forward rate for the blank interval.
a?Use all available Government bond data to construct and present a yield curve, spot curve and...
a?Use all available Government bond data to construct and present a yield curve, spot curve and forward curve as at the end of June 2017 and the end of December 2017. Your spot curve and forward curve estimation should go out no more than 5 years. Present and discuss your findings. b?Review the predictive ability of the yield, spot and forward curves with comprehensive reference to the relevant academic literature. Discuss the curves that you have estimated in Part a?....
Assume the current Treasury yield curve shows that the spot rates six months, one year, and...
Assume the current Treasury yield curve shows that the spot rates six months, one year, and one and a half years are 1%, 1.1% and 1.3%, all quoted as semiannually compounded APRs. What is the price of a $1,000 par, 5% coupon bond maturing in one and a half year s (the next coupon is exactly 6 months from now)?
Assume the current Treasury yield curve shows that the spot rates for six​ months, one​ year,...
Assume the current Treasury yield curve shows that the spot rates for six​ months, one​ year, and one and a half years are 1%, 1.1%​, and ​1.3%, all quoted as semiannually compounded APRs. What is the price of a ​$1000 ​par, 5% coupon bond maturing in one and a half years​ (the next coupon is exactly six months from​ now)
You can calculate the yield curve, given inflation and maturity-related risks. Looking at the yield curve,...
You can calculate the yield curve, given inflation and maturity-related risks. Looking at the yield curve, you can use the information embedded in it to estimate the market's expectations regarding future inflation, risk, and short-term interest rates. The theory states that the shape of the yield curve depends on investors' expectations about future interest rates. The theory assumes that bond traders establish bond prices and interest rates strictly on the basis of expectations for future interest rates and that they...
Assume the current Treasury yield curve shows that the spot rates for six​ months, one​ year,...
Assume the current Treasury yield curve shows that the spot rates for six​ months, one​ year, and one and a half years are 1 %​, 1.1 %​, and 1.3 %​, all quoted as semiannually compounded APRs. What is the price of a ​$1 comma 000 ​par, 3.5 % coupon bond maturing in one and a half years​ (the next coupon is exactly six months from​ now)?
Assume the current Treasury yield curve shows that the spot rates for six​ months, one​ year,...
Assume the current Treasury yield curve shows that the spot rates for six​ months, one​ year, and one and a half years are 1 %​, 1.1 %​, and 1.3 %​, all quoted as semiannually compounded APRs. What is the price of a ​$1 comma 000 ​par, 3.5 % coupon bond maturing in one and a half years​ (the next coupon is exactly six months from​ now)?
Suppose in the Wall Street Journal you see the following current (spot) interest rates for Treasury...
Suppose in the Wall Street Journal you see the following current (spot) interest rates for Treasury bonds with an upward sloping yield curve:                   5-year bond rate =1.45%; 10-year bond rate = 2.13%    a. Under the expectations theory, what is the expected 5-year bond rate (forward rate) 5 years from now? Based on your answer, what are rates expected to do (rise/fall/stay the same)? Explain why Expected 5-year bond rate 5 years from now = _________________ (Be sure to show your...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT