Term Structure

Term Spot Yield Zero Price

t R(0,t) B(0,t) Term Structure
1 5.36% $ 0.94916
2 5.68% $ 0.89541 9.00%
3 5.97% $ 0.84030
4 6.24% $ 0.78508 8.50%
5 6.48% $ 0.73068
8.00%
6 6.70% $ 0.67784
7 6.89% $ 0.62706 7.50%
8 7.08% $ 0.57870
9 7.24% $ 0.53298 7.00%
10 7.39% $ 0.49001
6.50%
11 7.53% $ 0.44983
12 7.66% $ 0.41241 6.00%
13 7.78% $ 0.37769
14 7.89% $ 0.34557 5.50%
15 7.98% $ 0.31592
5.00%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Term to Maturity

Page 1
 Term Structure

12 13 14 15

Page 2
Bond Coupon 12.00%
Bond Price 86 15/16
Static Spread 6.82%
Spread Adj Spread Adj
Term Spot Yield Zero Price Zero Price Cash Present
t R(0,t) B(0,t) B*(0,t) Flow Value
1 5.36% $ 0.94916 $ 0.89147 $ 12.00 $ 10.69769
2 5.68% $ 0.89541 $ 0.79018 $ 12.00 $ 9.48210
3 5.97% $ 0.84030 $ 0.69696 $ 12.00 $ 8.36350
4 6.24% $ 0.78508 $ 0.61216 $ 12.00 $ 7.34596
5 6.48% $ 0.73068 $ 0.53576 $ 12.00 $ 6.42911
6 6.70% $ 0.67784 $ 0.46745 $ 12.00 $ 5.60943
7 6.89% $ 0.62706 $ 0.40678 $ 12.00 $ 4.88141
8 7.08% $ 0.57870 $ 0.35319 $ 12.00 $ 4.23832
9 7.24% $ 0.53298 $ 0.30607 $ 12.00 $ 3.67288
10 7.39% $ 0.49001 $ 0.26480 $ 12.00 $ 3.17762
11 7.53% $ 0.44983 $ 0.22877 $ 12.00 $ 2.74526
12 7.66% $ 0.41241 $ 0.19741 $ 12.00 $ 2.36886
13 7.78% $ 0.37769 $ 0.17016 $ 12.00 $ 2.04195
14 7.89% $ 0.34557 $ 0.14655 $ 12.00 $ 1.75859
15 7.98% $ 0.31592 $ 0.12612 $ 112.00 $ 14.12508
Theoretical price $ 86.93776
Price spread $ 0.00026
 Forward Rates

Term Structure (hypothetical)

Term Spot Yield Zero Price Forward Rate

t R(0,t) B(0,t) r(t)
1 5.36% $ 0.94916 5.36%
2 5.68% $ 0.89541 6.00%
3 5.97% $ 0.84030 6.56%
4 6.24% $ 0.78508 7.03%
5 6.48% $ 0.73068 7.44%
6 6.70% $ 0.67784 7.80%
7 6.89% $ 0.62706 8.10%
8 7.08% $ 0.57870 8.36%
9 7.24% $ 0.53298 8.58%
10 7.39% $ 0.49001 8.77%
11 7.53% $ 0.44983 8.93%
12 7.66% $ 0.41241 9.07%
13 7.78% $ 0.37769 9.19%
14 7.89% $ 0.34557 9.30%
15 7.98% $ 0.31592 9.38%

Page 4
 Binomial Tree (nc)

Binomial Tree Pricing, Noncallable Bond

Interest Rate Volatility

Volatility 10%
Forward Rate Tree
Date r(t,t+1)
0 5.36%
1 6.00% 7.33%
2 6.56% 8.01% 9.78%
3 7.03% 8.59% 10.49% 12.82%

Theoretical Bond Price, Noncallable Bond

Maturity Date 4
Coupon 7.25%
Bond Value Tree
Date
0 $ 6.88
1 $ 7.25 $ 7.25

0 $ 6.45
1 $ 6.84 $ 6.75
2 $ 7.25 $ 7.25 $ 7.25

0 $ 5.97
1 $ 6.38 $ 6.20
2 $ 6.80 $ 6.71 $ 6.60
3 $ 7.25 $ 7.25 $ 7.25 $ 7.25

0 $ 80.58
1 $ 86.80 $ 82.99
2 $ 93.36 $ 90.65 $ 87.50
3 $ 100.20 $ 98.76 $ 97.06 $ 95.06
4 $ 107.25 $ 107.25 $ 107.25 $ 107.25 $ 107.25

Date 0 Sum $ 99.88

Option Adjusted Spread, Noncallable Bond

Maturity Date 4
Coupon 7.25%
Bond's Market Price $ 90.00
OAS 3.16%
Bond Value Tree
Date
0 $ 90.00
1 $ 99.47 $ 95.85
2 $ 101.96 $ 99.39 $ 96.39
3 $ 104.58 $ 103.23 $ 101.62 $ 99.73
4 $ 107.25 $ 107.25 $ 107.25 $ 107.25 $ 107.25
Theoretical Value minus Market Price $ 0.00

Page 5
 Binomial Tree (c)

Binomial Tree Pricing, Callable Bond

Interest Rate Volatility

Volatility 10%
Forward Rate Tree
Date r(t,t+1)
0 5.36%
1 6.00% 7.33%
2 6.56% 8.01% 9.78%
3 7.03% 8.59% 10.49% 12.82%

Theoretical Bond Price, Callable Bond

Maturity Date 4
Coupon 7.25%
Bond Value Tree
Date
0 $ 99.84
1 $ 107.18 $ 103.20
2 $ 107.25 $ 104.62 $ 101.36
3 $ 107.25 $ 106.01 $ 104.31 $ 102.31
4 $ 107.25 $ 107.25 $ 107.25 $ 107.25 $ 107.25

Option Adjusted Spread, Callable Bond

Maturity Date 4
Coupon 7.25%
Bond's Market Price $ 90.00
OAS 5.78%
Bond Value Tree
Date
0 $ 90.00
1 $ 93.62 $ 90.31
2 $ 97.75 $ 95.35 $ 92.56
3 $ 102.32 $ 101.02 $ 99.49 $ 97.68
4 $ 107.25 $ 107.25 $ 107.25 $ 107.25 $ 107.25
Theoretical Value minus Market Price $ 0.00

Page 6