Treasury strips
Question
The following table shows the prices of a sample of Treasury strips. Each strip makes a
single payment at maturity. Calculate the interest rate offered by each of these strips.
| Years to Maturity | Price, % |
| 1 | 96.952% |
| 2 | 93.451 |
| 3 | 89.644 |
| 4 | 85.580 |
| a. | What is the 1-year interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) |
| Interest rate | % |
| b. | What is the 4-year rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) |
| Interest rate | % |
| c. | Is the yield curve upward-sloping, downward-sloping, or flat? |
| Upward-slopingDownward-slopingFlat |
| d. | Is this the usual shape of the yield curve? |
| YesNo |
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