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2
104
1
104
3.547499 88.61685
4 4.5 5
4 4 104
2.719111 67.72895
Zero Coupon Bonds The zero coupon bonds represent a
Coupon Rate 0% yield curve known as zero curve or
Face value 100 spot curve.
Exhibit-2
Thus the YTM of these ZCB gives us
respective spot rates for that partic
Bond Maturity Price
maturity
0.5 96.154
1 92.354
1.5 88.607
2 84.918
2.5 81.294
3 77.738
3.5 74.256
4 70.855 T PRICE
4.5 67.53 0.5 96.154
5 64.293 1 92.354
1.5 88.607
2 84.918
pon bonds represent a
nown as zero curve or the
YTM/SPOT RATE
8.04%
8.14%
8.24%
8.36%
Coupon rate 8%
Face value 100
Exhibit-1
Bond Maturity Price BOOTSTRAPPING FROM ZCB
0.5 100 8% 8.04%
1 99.894 8.22% 8.14%
1.5 99.692 8.40% 8.24%
2 99.399 8.52% 8.36%
2.5 99.027
3 98.581
3.5 98.069
4 97.502
4.5 96.878
5 96.213
finding the 1 year spot rate
T 0.5 1 using goal seek
CASH FLOW 4 104
discount factor 8% 0.041104 8.22%
PV 99.894 3.849002 99.894
8.000%
T=0.5 T=1
n 2 year bonds and the spot rate in first 2 years
8.521%
8.401%
33% 8.33% 8.33% 8.33%
8.221%
00%
(1+S1.5)^1.5*(1+f0.5,
1.5-2)^1=(1+s2)^2
price of
coupon price of Time to
Saturday, January 01, 2000 bonds zcb maturity
Saturday, July 01, 2000 0.5 100 96.154 0.5
Monday, January 01, 2001 1 99.894 92.354 1
Sunday, July 01, 2001 1.5 99.692 88.607 1.5
Tuesday, January 01, 2002 2 99.399 84.918 2
Monday, July 01, 2002 2.5 99.027 81.294 2.5
Wednesday, January 01, 2003 3 98.581 77.738 3
Tuesday, July 01, 2003 3.5 98.069 74.256 3.5
Thursday, January 01, 2004 4 97.502 70.855 4
Thursday, July 01, 2004 4.5 96.878 67.53 4.5
Saturday, January 01, 2005 5 96.213 64.293 5
spot curve
9.200% 9.032%
9.000% 8.917%
f(x) = 5.36210567020113E-07x^3 - 3.01757473177251E-06x^2 + 0.0022967489x
8.802% + 0.078848941
8.800% 8.688%
8.573%
8.600% 8.458%
8.344%
8.400% 8.229%
8.200% 8.114%
8.000%
8.000%
7.800%
7.600%
7.400%
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5
spot rates from ZCB
YTM
8.0000% 8.000% Yield curve
8.1125% 8.114% 9.2000%
8.2224% 8.229% 8.9562%
9.0000%
8.3324% 8.344% f(x) = - 0.000000059x^3 - 0.000029321x^2 + 0.0022877056x
8.8562%
8.7536% + 0.0788639027
8.4398% 8.458% 8.8000%
8.6512%
8.5462% 8.573% 8.5462%
8.6000%
8.6512% 8.688% 8.4398%
8.4000% 8.3324%
8.7536% 8.802%
8.2224%
8.8562% 8.917% 8.2000% 8.1125%
8.9562% 9.032% 8.0000%
8.0000%
7.8000%
7.6000%
9.032% 7.4000%
8.917% 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5
06x^2 + 0.0022967489x
8.802% + 0.0788489412
8.688%
%
9.200%
9.000%
f(x) = - 7.36964834537548E-09x^3 - 7.33025102885171E-06x^2 + 0.00114
8.800%
8.600%
8.400%
8.200%
8.000%
7.800%
7.600%
7.400%
0.5 1 1.5 2 2.5 3 3.5 4
7.800%
7.600%
7.400%
0.5 1 1.5 2 2.5 3 3.5 4
8.9562%
8.8562%
877056x
8.7536% + 0.0788639027
%
4 4.5 5 5.5