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The government has four bonds in issue. Each bond has a par value of K100 and is redeemable at its par value at the end
Posted: Wed Mar 30, 2022 3:44 pm
by answerhappygod
- The Government Has Four Bonds In Issue Each Bond Has A Par Value Of K100 And Is Redeemable At Its Par Value At The End 1 (44.94 KiB) Viewed 47 times
The government has four bonds in issue. Each bond has a par value of K100 and is redeemable at its par value at the end of the stated period. The first bond which is redeemable at the end of the first year has a coupon rate of 6% and a price of K103.50. The second bond is redeemable at the end of the second year. This second bond has a coupon rate of 5% and is trading at K102.50. The third bond which has a coupon rate of 4% is redeemable at the end of the third year and is trading at K98.75. Lastly, the fourth bond has coupon rate of 3.5% and is trading at K95.50. Calculate the government bond annual spot yield rates for years from 1 to 4 by bootstrapping the above coupon paying bonds and state the shape of the resulting government bond yield curve.