CAS Exam 9 Spring 2014, Question 8
Study guide: Exam 9
Given the following information below regarding a series of bonds:
| Bond | Maturity (Years) | Face Value | Annual Coupon |
|---|---|---|---|
| A | 1.0 | $1000 | 0% |
| B | 2.0 | $1000 | 0% |
| C | 3.0 | $1000 | 3% |
| D | 3.0 | $1000 | 0% |
- The price of bond A is $951.23.
- The two-year spot rate is 8%, continuously compounded.
- The price of bond C is $901.78.
Part a (1.5 points)
Plot the pure yield curve.
Part b (0.5 points)
Explain the shape of the pure yield curve plotted in part a. above using a term-structure theory of interest rates.
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution