Assignment
1. Use the par yield curve below to price the cash flows given in the left-most column.Quote the price to the closest penny.
|
Period
|
Maturity (yrs)
|
Yield (BEY %)
|
CF ($)
|
|
1
|
0.5
|
0.5
|
10
|
|
2
|
1
|
2
|
20
|
|
3
|
1.5
|
3
|
100
|
|
4
|
2
|
4
|
-30
|
|
5
|
2.5
|
5
|
50
|
|
6
|
3
|
6
|
50
|
|
7
|
3.5
|
7
|
100
|
|
8
|
4
|
7.5
|
200
|
|
9
|
4.5
|
8
|
0
|
|
10
|
5
|
8.4
|
1,000
|
2. Give and describe the no-arbitrage table to price a 2-year zero coupon loan 2 years from now, accounting for the actions of all parties. For concreteness sake, use the par yield curve in question 1. What is the lockable, annualized rate for such a loan?
3. Briefly describe the expectations hypothesis, and how the liquidity preference theory accounts for the observation that the yield curve tends to be upward sloped, rather than what is predicted by the expectations hypothesis.
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.