P1.T4.Ch10 - Q 10.20 Mistake in GARP answer

[ktrathen]

I think there is a mistake in the answer to GARP question 10.20 in book 4.

10.20 The cash prices of 6-month and one-year Treasury bills are 97.0 and 93.0. A 1.5-year and two-year Treasury bond with coupons at the rate of 6% per year sell for 98.5 and 97.5. Calculate the six-month, 12-month, 18-month, and 24-month spot rates with semi-annual compounding.

These are my answers:

6m: 6.186%
12m: 7.390%
18m: 7.074%
24m: 7.383%

GARP answers:

6m: 6.186%
12m: 7.390%
***18m: 7.612% (maybe wrong?)***
24m: 7.383%

Are you able to verify a possible mistake in the 18 month rate provided by GARP? I match off with their discount factor, but not the rate implied by it.

Many thanks.

 

[David Harper CFA FRM]

Hi @ktrathen Yes, I agree with you! good catch .... see below. I get spot rates of (6.1856%, 7.3903%, 7.0744%, 7.3831%}. My XLS is here https://www.dropbox.com/s/e54dm851wo48ia5/083120-GARP-P1-T4-EOC-10-20.xlsx?dl=0

 

[ktrathen]

Legend. Thanks.