You are given the following quotes for liquid swap rates. Assume that all time intervals are measured in years.
|
Term |
Bid/Ask |
|
2 |
6.2-6.5 |
|
3 |
6.4-6.7 |
|
4 |
7.0-7.3 |
|
5 |
7.5-7.8 |
|
6 |
8.1-8.4 |
You know that the current 12-month Libor rate is 5%.
(a) Calculate the FRA rates for the next five years, starting with a 1 × 2 FRA.
(b) Calculate the discount bond prices B(t0, ti), where ti = 1, …, 6 years.
(c) Calculate the yield curve for maturities of 0 to 18 months.
(d) Calculate the par yield curve.