Deriving spot rate
Is it possible to derive the 1 and 2 year spot rates from the prices of two coupon bonds (2 year maturity and 3 year maturity) and one 3 year zero-coupon bond?
Is it possible to derive the 1 and 2 year spot rates from the prices of two coupon bonds (2 year maturity and 3 year maturity) and one 3 year zero-coupon bond?
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You can measure the distance between "here" and "there" but you can't measure "here" by using "there" with no knowledge of "here"......
it sounds like from the phrasing of the question you're asking to get some insight into a homework assignment....the 3 yr zero is the clue here
Hmm, maybe I'm wrong, but I don't see how you can solve your problem with the info you posted... if you had a 6 month or 1 year zero, you could use bootstrapping to derive the spot rates you listed...
hmm I too think the answer is no.. (note im just thinking in terms of the denominator in the next bit)
you can think of the three year zero as the product of the two year spot and three year fwd if you could find three year fwd rate with your knowledge of the 2yr coupon bond and 3yr coupon bond then I think you'd get your answer but I think this is impossible... the best you can do is find the three yr zero rate which you already know
thanks guys, this is confirmation of what ive been thinking. i think maybe the prof messed up on the question...
Actually, this IS possible. I just did it.
Do you mind enlightening us?
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