Yields, % pa
Year 1 2 3 4 5
Bond price 100 100 100 100 100
Coupon 5.00 5.25 5.50 5.75 6.00
GRY 5.00% 5.25% 5.50% 5.75% 6.00%
Zeros 5.00% 5.26% 5.52% 5.79% 6.06%
6.5%
6.0% 5.5%
Two Year bond Cash flows PV 1 £5.25 £5.00 2 £105.25 £95.00 Sum £100.00
5.0%
4.5%
Three year bond Cash flows PV Four year bond Cash flows PV Five year bond Cash flows PV 1 £6.00 £5.71 2 £6.00 £5.42 3 £6.00 £5.11 4 £6.00 £4.79 5 £106.00 £78.97 1 £5.75 £5.48 2 £5.75 £5.19 3 £5.75 £4.89 4 £105.75 £84.44 Sum £100.00 1 £5.50 £5.24 2 £5.50 £4.96 3 £105.50 £89.80 Sum £100.00
1.00
Sum £100.00
Change the cells highlighted in yellow above to change the shape of the yield curve and the zero cou
Coupon paying curve
Zero coupon curve
00
2.00
3.00 4.00 Years to maturity
5.00
the shape of the yield curve and the zero coupon rates.
Year 1 2 3 4 5
Bond price 100 100 100 100 100
Coupon 5.00 5.25 5.50 5.75 6.00
GRY 5.00% 5.25% 5.50% 5.75% 6.00%
Zeros 5.00% 5.26% 5.52% 5.79% 6.06%
Forwards 5.51% 6.04% 6.60% 7.18%
7.5% 7.0% Yields, % pa 6.5% 6.0% 5.5% 5.0%
4.5%
Coupon paying curve Zero coupon curve 1 Yr forward rates
4.0% 1.00 2.00 3.00 4.00 Years to maturity 5.00
.00