SPOT RATE QUESTION... WHY?? obtained, months, method, following, currently

hardwork24

An analyst has obtained the following Treasury data for bonds currently trading at their par values:


Maturity
Coupon
Price

6 months
4%
100

1 year
5%
100

18 months
6%
100


Using the method of bootstrapping, which of the following is closest to the theoretical Treasury spot rate curve?


6-month spot rate
1-year spot rate
18-month spot rate



A) 4.00%
5.0126%
6.2333%



B) 4.00%
5.0126%
6.0407%



C) 2.00%
5.3501%
6.0407%




Your answer: C was incorrect. The correct answer was B) 4.00% 5.0126% 6.0407%
iWHY is the 6 month spot rate 4% and not 2%, since that's what we use as a spot rate to get the other ones??? Anybody?

ogoluwa

I'm not sure, but could it be that you should be using the BEY as your starting rate?