Could you kindly help with the following question.

How do you calculate the 5th year spot rate, when given the following information?

1 year: Par rate = 2.5% Spot rate = 2.5%

2 year: Par rate = 2.99% Spot rate = 3.0%

3 year: Par rate = 3.48% Spot rate = 3.5%

4 year: Par rate = 3.95% Spot rate = 4%

5 year: Par rate = 4.37% Spot rate = X%

The answer is 4.45% - however, I don’t know how to calculate this. If you could kindly show me the quickest method on BA II plus, it would be most appreciated.

yes? when asked for bond pricing using spot rates (either now or back in Level 1), how do you usually do it in the calculator? it’s almost the same process.

I use the STO and RCL function of my calculator most of the time (using TI BA2 plus) and that’s enough for this question.

this is the formula that I wrote and we’re looking for x: 100 = 4.37/(1.025) + 4.37/(1.03)^{2} + 4.37/(1.035)^{3} + 4.37/(1.04)^{4} + 104.37/(1+x)^{5}

now, you know the coupon is 4.37, here’s what I’d do:

find 4.37/1.025, then store it

find 4.37/1.03^{2} then store it

find 4.37/1.035^{3} then store it

find 4.37/1.04^{4} then store it

press 100, and then subtract it by the sum of values from step 1-4

using the value you got from step 5, press 1/x and then multiply it by 104.37

using the value you got from step 6, press y^{x} and enter 0.2

subtract value from step 7 by 1 to arrive at the 5-year spot rate

if you need help or explanations on how/why to do some of these steps quickly, message me directly rather than replying in this thread. I can do all 8 steps in less than a minute. practice using your calculator to its utmost potential. I can do all these steps in less than a minute and so can you.

if you are not confident with storing and recalling values in your calculator, then you should just write down the values you get in each step.