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The following table shows the prices of the Treasury STRIPS in December 2019. Each STRIP makes...

The following table shows the prices of the Treasury STRIPS in December 2019. Each STRIP makes a single payment of $1,000 at maturity.

Maturity Price(%)

December 2020 97.418

December 2021 94.259

December 2022 90.851

December 2023 86.976

1.Calculate the annually compounded, spot interest rate for each year.

Maturity Spot Interest Rate

December 2020 __________ %

December 2021 __________ %

December 2022 __________ %

December 2023 __________ %

2.What will be the 2-year spot interest rate in two years if the expectations therory of term structure is correct ?

The 2 - year spot interest ratein two years will be _______ %

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 2 years ago

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