Using the prices and cash flows of Treasury coupon bonds shown below, determine the par bond...

Using the prices and cash flows of Treasury coupon bonds shown below, determine the par bond yield for each of the Treasury securities.

Bond	Price	Year 1	Year 2	Year 3
1	99.50	105
2	101.25	6	106
3	100.25	7	7	107

Using Excel, solve the above problem and graph the resulting Treasury par bond yield curve (show formula). Suppose that the 6-month, 12-month, 18-month, and 24-month zero rates are 5%, 6%, 6.5%, and 7% respectively. What is the two-year par yield?

Expert Solution

Please see the table below. All financials are in $. Please see the second row to understand the mathematics. The last column colored in yellow contains your answer. Adjacent cell in blue shows the excel formula used to get the answer.

Hence, the graph will be:

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jeff jeffy answered 2 years ago

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