Revision as of 01:23, 20 November 2023 by Admin (Created page with "The prices for four 1000 face amount zero-coupon bonds are as follows: {| class="table" |- ! Price !! Term (in years) |- | 943.40 || 1 |- | 747.26 || 5 |- | 558.39 || 10 |- | 311.80 || 20 |} Determine which of the following statements describes the yield curve underlying these prices. <ul class="mw-excansopts"><li>The yield curve is increasing with constant slope.</li><li>The yield curve is flat.</li><li>The yield curve is inverted with constant slope.</li><li>The yi...")
Nov 20'23
Exercise
The prices for four 1000 face amount zero-coupon bonds are as follows:
| Price | Term (in years) |
|---|---|
| 943.40 | 1 |
| 747.26 | 5 |
| 558.39 | 10 |
| 311.80 | 20 |
Determine which of the following statements describes the yield curve underlying these prices.
- The yield curve is increasing with constant slope.
- The yield curve is flat.
- The yield curve is inverted with constant slope.
- The yield curve is concave upward.
- The yield curve is concave downward
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
Nov 20'23
Solution: B
All prices imply an interest rate of 6% indicating that the yield rate does not change with duration, that is. the yield curve is flat.
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.