Question

Let’s suppose today is 1/4/2019 and you observe the information from various coupon bonds issued by

the Australian Government. Using the bond information, please complete the following tasks:

1. Construct the pure yield curve. （This is not the YTM curve)

Maturity Date	CR (%)	Price	FV	Freq
2020/4/1	4.50	$103.09	$100.00	Annual
2021/4/1	5.75	$108.94	$100.00	Annual
2022/4/1	2.25	$102.97	$100.00	Annual
2023/4/1	5.50	$116.13	$100.00	Annual
2024/4/1	2.75	$106.25	$100.00	Annual

Answer 1

Yield can be calculated by dividing future value / present value or price and taking the root for the corresponding time period.

For e.g. for year 2, we know the return on the coupon is 5.75% and with FV of 100$

Thus, future value would be 100 * (1.0575)^2 = 111.83 and the price is 108.94.

So, the yeild would be (111.83 / 108.94) ^ (1/2) = 1.32%

The YTM can be calculated as ((1+ 2yr yeild) ^ 2) = (1 + YTM₁) * (1+ YTM₂)

So, I have calculated in the excel screenshot below. Also, kept formulae in table below.