Bootstrapping

actually you just needed to divide each one by two and then calculate 2f4. It asked to find the 1 year (2 periods) forward rate 2 years (4 periods) from now.

2f4 = [(1+S6)^6/(1+S4)^4]^(1/2)-1

I came up with 6.4 i think
 
scottrader Wrote:
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> actually you just needed to divide each one by two
> and then calculate 2f4. It asked to find the 1
> year (2 periods) forward rate 2 years (4 periods)
> from now.
>
> 2f4 = [(1+S6)^6/(1+S4)^4]^(1/2)-1
>
> I came up with 6.4 i think



what he said - thats what i was trying to say in my own convoluted way.
 
Ok, we agree on math(scottrader's calculation) - in effect it skips a step of calculating annualized rate.

I might be confused about what the actual number it came out to. All the numbers are blur, thus me asking if anyone remembered the spot rates inputs given.
 
With the way it was presented, it made it appear that the rates were being quoted on a BEY.
 
Safado Wrote:
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> With the way it was presented, it made it appear
> that the rates were being quoted on a BEY.


That's because they were!
 
Does anyone know if we had to divide each of those rates by 2?

For eg - say x - 6th period and y- 4th period

Then I just did square root of {(1+x) ^ 6 }/ {(1+y)^4} - 1.

Did we need to instead use x/2 and y/2???

Im sooo anxious!!
 
arunarathi Wrote:
-------------------------------------------------------
> Does anyone know if we had to divide each of those
> rates by 2?
>
> For eg - say x - 6th period and y- 4th period
>
> Then I just did square root of {(1+x) ^ 6 }/
> {(1+y)^4} - 1.
>
> Did we need to instead use x/2 and y/2???
>
> Im sooo anxious!!


Let me put it this way... you did it WRONG. I hope it relieves your anxiety. Refer to previous posts.
 
sbtrader Wrote:
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> If they were in BEY - probably only the 0.5 year.
>
> Else we would have need to run a bootstrapping for
> every single semi annual to get the spot rate.
>
> As far as I remember, we werent given any other
> info than to calculate 2f1

Yields need always be expressed in BEY. So in this case, you had to multiply whatever you found from the equation by 2.
 
u gotta use the 1/2 year rate and raise the power to the no of half-years.
it is semi-annual bond.
 
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