CHE249H1 Lecture Notes - Lecture 3: Linear Interpolation, United States Treasury Security, Capital Asset Pricing Model
1 Mar 2016
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C h e 3 7 4 p r o b l e m s e t 3. Excel has a function which can help us solve this: yield( today , maturity ,coupon. We use random dates which are spaced apart appropriately for the maturity. We assume the coupon rate is zero because there is none listed in the table. When we don"t divide by t, we get values that seem to follow the order of the ytm (increasing as maturity increases). It makes sense that the second option is correct, so that is the answer for the continuous yield we will submit (column h). b) Risk-free for t-bills is just the t-bill rate, seeing as they are as risk-free as it gets. For 7 months efective annually, linear interpolation: r8 r 7. For 7 months continuously compounding, linear interpolation: r8 r 7. 1. 0 0 9988 (1. 022831)2=3. 58: estimating the price of a t-bill maturing in diferent periods a)
