I mean BOOTSTRAP can someone teach me how to bootstrap this: An analyst obtains the following data for Treasury bonds: Maturity Coupon Price 6 months 3.0% 100 1 year 4.0% 100 18 months 5.0% 100 Using the method of bootstrapping, what is the theoretical Treasury spot rate curve with rates expressed as bond equivalent yields? 6-month spot rate I-year spot rate l8-month spot rate A. 1.5% 4.25% 5.03% B. 3.0% 4.25% 5.13% C. 3.0% 4.01% 5.13% D. 3.0% 4.01% 5.03% Ans: D

6 month spot: Easy, itâ€™s the same as the BEY (3%) 1 year spot: Recall that bond price = present value of cashflows, with each cashflow discounted at the corresponding spot rate. Coupon is 2 (.04/2 * 100), thus equating the two gives (remember to divide the spot rate by 2 to get 6 month rate) 2/1.015 + 102/(1+r)^2 = 100 -> r = 2.005 and thus spot rate = 4.01%. 18 month: 2.5/1.015 + 2.5/1.02005^2 + 102.5/(1+r)^3 = 100 -> r = 2.517 and spot rate = 5.03%.