FINA 385 Final: FINA 385 Practice Final Problems.pdf

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25 Apr 2015
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It"s gabrielle"s rst day on the job and she"s been asked by her boss to bootstrap the implied yield curve from two di erent sets of bonds. The rst set of bonds are issued by the german government while the second set of bonds are issued by the little-known empire of dave. Gabrielle"s boss has intentionally selected bonds with the same coupon rate and time to maturity from each set though they do di er in their price and yield between the sets. German bond price empire of dave bond price. Using the information above compute the yield-curve implied by each set of bonds. Then identify the yield spread between the german and empire of dave bonds at di erent time horizons. Name which state each of the yield curves is in (contango, backwardation, at) and give a reason why the yield spread may be changing over time.

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