Unformatted text preview: *— Spot Rates from Zeros Suppose you have a 6-monm t—bill trading at 99.75.
The BEY isthe return x 2 = 0.501396
Lyear t—biil at 99.25 => BEY = 0.754294. These are considered spot rates since they are from
zero coupons. Can get spots from STRIPS too. 5-Year C—STRIP at $89.50 => BEY = 2.231096 -_ _1'5_ = .
HUM] 1] 2‘“ ﬂ , YTM vs. Spot Vaiuation
All things semi-annual - Supposevue have two years to maturity coupon payment is c.
parvalue is M, the price is Ryis the YTM expressed as a 89!. - [:3me use: 1 as haifd'ne annual spot me for each six Methods For Extracting Spot Curve 1) Use oniy on-ﬁie-run Treasuries
- 2) Use both on and selected oﬁ-the—run Treasuries 3) Use all Coupon Treasuries and t‘bills - dim! w“:
4 crsnups & P—SI’RIPS _/
- Which one is easiest? ...
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- Fall '10