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The following table shows the prices of a sample of U.S. Treasure STRIPs in August 2020....

The following table shows the prices of a sample of U.S. Treasure STRIPs in August 2020. Each strip makes a single payment of $1,000 at maturity without any coupons. (10 points)

Maturity

Price (%)

August 2021

95.53

August 2022

91.07

August 2023

86.20

August 2024

81.08

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

Spot rate for 1-year strip =

Spot rate for 2-year strip =

Spot rate for 3-year strip =

Spot rate for 4-year strip =

  1. Is the term structure upward or downward sloping or plat? Explain.
  1. Calculate the annually compounded, one-year forward rate of interest for August 2022.

Solutions

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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