Compute the Spot rate using the following information on Treasury securities Sup

Question

Compute the Spot rate using the following information on Treasury securities

Suppose two years from now you want to borrow money for ten years, how would you compute implied forward rate? (Just write the formula for it)

Period              Maturity          Coupon Rate/YTM     Spot Rate        Price

1                      0.5                   10.00%                                                $100

2                      1.0                   9.50%                                                  $100

3                      1.5                   9.45%                                                  $100

4                      2.0                   9.25%                                                  $100

Explanation / Answer

The rate that is to be used is the spot rate 2 years from now.

Coupon rate = 9.25%

If it is a semi annual interest , the calculation is

i = (1+ 9.25/2)^2 = 9.46%

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