Given the following Treasury data, what is the 1-year spot rate? Maturity YTM Coupon Price 6 months 1.0% 1.0% 100 1 year 1.5% 1.5% 100 18 months 2.5% 2.5% 100 A) 1.13%. B) 2.25%. C) 1.50%. D) 1.51%.
C
Assuming that these are annual rates w/ semi-annual coupons… 100 = (0.75) / (1.01)^1/2 + (100.75) / (1 + r)
IF this is a annual coupon, you can assume that the spot rate = coupon rate because the bond is priced at par (choice C). If this is a semi-annual coupon you have to do the math, which actually gives you 1.5075% (choice D)
McLeod81 Wrote: ------------------------------------------------------- > AND… since the 1 year treasury is priced at > PAR, you can see that the 1 year spot rate = > coupon rate. No calculation needed. I too thought this was ironic.