Hello
This is in regards to explanation on Hull 04.13 question on the par yield calculation from sets of upward sloping spot rates.
Suppose that the 6-month, 12-month, 18-month, and 24-month zero rates are 5.0%, 6.0%, 6.5%, and 7.0%, respectively. What is the 2-year par yield?
Answer was:
Using the notation in the text, m = 2, d = e^-0.07x2 = 0.8694. Also A = e^-0.05x0.5 + e^-0.065x1.5 + e^-0.07x2.0 = 3.6935 The formula in the text gives the par yield as (100 – (100 x 0.8694) x 2)/3.6935 = 7.072
How do you come to arrive to this formula.
I am bit confused.
Can you pls explain?
Thanks,
This is in regards to explanation on Hull 04.13 question on the par yield calculation from sets of upward sloping spot rates.
Suppose that the 6-month, 12-month, 18-month, and 24-month zero rates are 5.0%, 6.0%, 6.5%, and 7.0%, respectively. What is the 2-year par yield?
Answer was:
Using the notation in the text, m = 2, d = e^-0.07x2 = 0.8694. Also A = e^-0.05x0.5 + e^-0.065x1.5 + e^-0.07x2.0 = 3.6935 The formula in the text gives the par yield as (100 – (100 x 0.8694) x 2)/3.6935 = 7.072
How do you come to arrive to this formula.
I am bit confused.
Can you pls explain?
Thanks,