BAFI1065 Individual Project On Money Markets And Fixed Income Securities

Questions

Part 2: (18 Marks) 

1. Use all available Government bond data to construct and present a yield curve, spot curve and forward curve as at the end of June 2020 and the end of December 2020 (i.e. not just the four bonds in your portfolio, all bonds from table f16 except the indexed bonds). Estimate the spot curve and forward curve for 5 years. Present and discuss your findings. (7 marks)
2. Review the yield, spot, and forward curves' predictive ability with a comprehensive reference to the relevant academic literature. Discuss the curves that you have estimated in Part 2 (A) regarding this literature. Consider the current COVID-19 pandemic issue. Does the June 2020 forward curve appear to predict the six-month spot rates in December 2020? Comment. (11 marks)