Calculate the binomial interest rate tree

Assignment Help Financial Management
Reference no: EM131316515

Note: please assume annual compounding of interest for these problems.

The on-the-run US Treasury par curve is as follows:

Maturity         Coupon/YTM             Market Price

1                                  3.50%                          $100

2                                  3.75%                          $100

3                                  4.00%                          $100

Using the bootstrapping methodology, the spot rates are:

Maturity         Spot Rate

1                           3.5000%

2                           3.7547%

3                           4.0134%

Assume 10% annual interest rate volatility

1. Calculate the binomial interest rate tree using the 2-year on-the-run issue and the 3-year on-the-run issue.

Reference no: EM131316515

Questions Cloud

How many goods will china gain in seigniorage : Suppose that Japan (country a) and China (country b) do not have foreigncurrency controls in effect. The total demand for money is always 2,000 goods in Japanand 1,000 goods in China. The fiat money supplies are 100 yen in Japan and 300 RMB in China...
Which is a function of pmo project monitoring : A unique responsibility of the PMO is assessing and elevating enterprise project management ability (competency, capability, and maturity), which is a function of PMO project monitoring
Write a class that simulates managing a simple bank account : Write a class that simulates managing a simple bank account. The account is created with an initial balance. It is possible to deposit and withdraw funds, to add interest, and to find out the current balance.
Find the natural frequencies as a function of the mass m : A plate of mass m, supported by a slender straight beam as shown in the Fig. P5.7, vibrates while sinusoidal force is applied to the center of the plate. Find the natural frequencies as a function of the mass m, flexural rigidity EI of the beam, a..
Calculate the binomial interest rate tree : Assume annual compounding of interest for these problems. Assume 10% annual interest rate volatility. Calculate the binomial interest rate tree using the 2-year on-the-run issue and the 3-year on-the-run issue.
Define pm assessment in context of the pmo : For this assignment, address the following items: Define PM assessment in context of the PMO infrastructure management. Describe the primary domains of encompassing PMO assessment
Write program that calculate and prints the monthly paycheck : Write a program that calculates and prints the monthly paycheck for an employee. The net pay is calculated after taking the following deductions: Federal Income Tax: 15%.
Nonconstant growth valuation-stock current price : Nonconstant Growth Valuation A company currently pays a dividend of $1.5 per share (D0 = $1.5). It is estimated that the company's dividend will grow at a rate of 24% per year for the next 2 years, then at a constant rate of 5% thereafter. The compan..
Write a main program that first reads all available meals : Write a main program that first reads all available meals from a file called menu.txt. Write a function called create_event. This function is be called if a customer of the company wants to book an event.

Reviews

Write a Review

 

Financial Management Questions & Answers

  The general journal entry to record this transaction

On September 1, Ziegler Corporation had 71,000 shares of $5 par value common stock, and $213,000 of retained earnings. On that date, when the market price of the stock is $15 per share, the corporation issues a 2-for-1 stock split. The general journa..

  Calculate value of real option by waiting one year to decide

Marcal Corporation is considering foreign direct investment in Asia. The company estimates that the project would require an initial investment of $18 million. and generate positive cash flows of $3 million a year at the end of each of the next 20 ye..

  What must the six-month risk-free rate

Currency per U.S. $ Australia dollar 1.2378 6-months forward 1.2355 Japan Yen 100.3400 6-months forward 100.0400 U.K. Pound .6791 6-months forward .6782 Suppose interest rate parity holds, and the current risk-free rate in the United States is 4 perc..

  The undergrounds has annual sales

The Underground's has annual sales of $1.46 million. The cost of goods sold is equal to 80 percent of sales. The firm has an average accounts receivable balance of $150,000 and an average accounts payable balance of $163,500. How many days on average..

  Afford to pay back a mortgage

Home values in many areas are declining. At the same time, many homeowners have seen their payments increase as their adjustable rate mortgages reset to higher rates. If they are unable to make the higher payments or to refinance at more favourable r..

  Calculate the net present value-payback-profitability index

Using a 4.4% discount rate, calculate the Net Present Value, Payback, Profitability Index and IRR for the following projects. Assuming a budget of $1,200,000 what are your recommendations for the three projests. assuming a budget of $2,000,000 what a..

  Calculate the net present value of the new machine

The Cabbage Patch Company currently uses a printing press that was purchased 5 years ago. The machine has a life of 15 years and was purchased for $7,500. The current book value of the machine is $5,000. The old equipment has a zero salvage value. Us..

  What pure interest rate is implied by these assumptions

The H Company just issued a two-year bond at 12%. Inflation is expected to be 4% next year and 6% the year after. H estimates its default risk premium at about 1.5% and its maturity risk premium at about .5%. Because it's a relatively small and unkno..

  What is the bonds yield to maturity

Yield to Maturity You have just purchased an outstanding 15-year bond with a par value of $1,000 for $1,145.68. It's annual coupon payment is $75. What is the bond's yield to maturity?

  Find the price Y of the two year zero coupon bonds

A one year zero coupon bonds have a price of 90.00. A two year zero coupon bond has a price of Y. A three year zero coupon bond has a price of 81.22. A three year 10% annual coupon bond has a price of 102.55. All of the bonds have a face and redempti..

  What is the total cost of leasing

The toyota motor company is advertising a 24 month lease of 2014 camry for $189 payable at the beginning of each month. The lease requires $2,399 down payment plus first month payment. what is the total cost of leasing if you put 40,000 miles at the ..

  What is net investment income tax liability

Allen Green is a single taxpayer with an AGI (and modified AGI) of $210,000, which includes $170,000 of salary, $25,000 of interest income, $10,000 of dividends, and $5,000 of long-term capital gains. What is Allen's Net Investment Income tax liabili..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd