Seminar 5
1. Read the following article and answer the following questions:
Which yield curve is higher in the US (2-year or 10-year) and why?
What signals about the future of the US economy do we get from yield curves?
For more details read also this article.
Links to articles:
https://www.cnbc.com/2022/07/13/us-bonds-treasury-yields-tick-higher-as-traders-prepare-
for-inflation.html
https://ig.ft.com/the-yield-curve-explained/
2. Suppose the market price of a 20-year pure discount bond with a face value of $1,000 is $214.55.
What is the spot interest rate for the 20-year maturity expressed in percentage per annum?
3. Consider a 2-year euro-denominated bond that has a current market price of €970, a face value
of €1,000, and an annual coupon of 5%. Suppose the 1-year euro-denominated spot interest rate
is 5.5%. What is the 2-year euro-denominated spot interest rate?
4. The 1-year rates can be viewed as spot interest rates, and the 2-year rates are yields to
maturity in annualized percent. The spot exchange rate is ¥132.192/£.
U.K. Japan
1 year 1.105 0.370
2 year 1.770 0.430
What should be the 2-year forward rate to prevent arbitrage?
5. Please, try to calculate EUR/USD 2 year forward rate based on the current market data.
Find the current EUR/USD spot rate, Germany 2-Year Bond Yield and U.S. 2 Year Treasury Note.
Compare your result to market forward rate.