Question

URGENT!!

The following table shows the prices of a sample of Treasury strips. Each strip makes a single payment at maturity. Years to Maturity Price, % of face value) 98.152% 94.651 90.844 86.780 a. What is the 1-year interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. What is the 2-year interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. What is the 3-year interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) d. What is the 4-year interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) e. Is the yield curve upward-sloping, downward-sloping, or flat? f. Is this the usual shape of the yield curve? a. Interest rate Interest rate Interest rate Interest rate Is the yield curve upward-sloping, downward-sloping, or flat? Is this the usual shape of the yield curve? f.

Answer 1

n-year rate=(Face Value/Price of n year zero coupon bond)^(1/n)-1

1.
=(1/98.152%)^(1/1)-1
=1.882794%

2.
=(1/94.651%)^(1/2)-1
=2.786812%

3.
=(1/90.844%)^(1/3)-1
=3.252660%

4.
=(1/86.780%)^(1/4)-1
=3.608429%

5.
Upward sloping

6.
Yes this is the usual shape