CH07 - 7-1Chapter 7Non Flat Term Structure7-2NotationR0,1 =...

This preview shows pages 1–15. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 7-1Chapter 7Non Flat Term Structure7-2NotationR0,1 = the spot interest rate observed at time 0 (first subscript) and lasting one period of time.R0,2 = the spot interest rate observed at time 0 (first subscript) and lasting two periods.7-3R0,1TimeSpot interest rates12R0,27-4One-period Present ValuePV1=11 + R0,10.9615 = 11.0411\$1S1= 96.15 = 1001.04100S1= One-period strip7-5Two-period Present ValuePV2=1(1 + R0,2)2S2= Two-period strip0.8573 = 1(1.08)211\$1S2= 85.73 = 100(1.08)210027-6n-period Present ValuePVn=1(1 + R0,n)n0.4665 = 1(1.10)81\$1S8= 46.65 = 100(1.10)8100n7-71/(1 + R0,1) or 1/(1 + R0,2)2? orWhich of the following can be true?a.LHS > RHSb.LHS = RHSc.LHS < RHSd.It depends.e.None of the above.11 + R0,11(1 + R0,2)27-8PV1≥PV2≥. . . ≥PVn≥1at timereceived\$1ofluePresent va2at timereceived\$1ofluePresent vanat timereceived\$1ofluePresent va≥… ≥7-9One-period StripPrice ofone-periodstrip= S1= [PV1][PAR]S1= = 100 = 96.15.1,R1PAR+04.117-10Two-period StripPrice oftwo-periodstrip= S2= [PV2][PAR] S2= = 100 = 85.73.22,)R1(PAR+2)08.1(17-11Cash flows for treasury strip with price SnPoints in time1…nCash flows –Sn0 … 0… +PAR7-12strip.aofparofdollarperPricePARstripperiod-nofPricentimeatreceived\$1ofValuepresentThePARSPVnn===7-13Finding the Term Structure of Interest Rates from Treasury Strips7-14One-period StripSince S1= 1,R1PAR+1 + R0,1= = = 1.041SPAR15.96100R0,1= 0.04 = 4%.7-15...
View Full Document

This note was uploaded on 06/07/2011 for the course FIN 4243 taught by Professor Dudley during the Spring '08 term at University of Florida.

Page1 / 48

CH07 - 7-1Chapter 7Non Flat Term Structure7-2NotationR0,1 =...

This preview shows document pages 1 - 15. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online