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P1.T3.203. Hull's Interest Rates (II)

Suzanne Evans

Well-Known Member

203.1. The 3-year US Treasury zero rate is 0.40%. A 5-year US Treasury P-STRIP is priced at $96.58. Assume annual compounding. Which is nearest to the implied two-year forward rate from year 3 to year five, F(3,5)?

a. 0.55%
b. 0.70%
c. 0.95%
d. 1.15%

203.2. The cash prices of six-month and one-year Treasury bills are $99.00 and $98.00, respectively. An eighteen month (1.5 year) bond that will pay $1.00 coupon every six months (i.e., coupon rate of 2.0% per annum payable semi-annually) currently sells for $97.00. Which is nearest to the 1.5 year zero rate with continuous compounding? (variation on Hull 4.23)

a. 2.84%
b. 3.75%
c. 4.06%
d. 5.39%

203.3. A five-year Treasury bond has a price of $96.00 (i.e., both its market price and theoretical price). It pays a $2.00 coupon every six months such that its coupon rate is 4.0% per annum. What is the bond's yield (YTM) with continuous compounding?

a. 2.85%
b. 3.70%
c. 4.85%
d. 4.91%