# A Fourth Way To Bootstrap Spot Rates

In May of 2015 I published a post calledÂ “3 -Ways to Bootstrap Spot Rates for the Treasury Yield Curve”. There was also an Excel workbook linked to that post. The workbook link is:

http://pistulka.com/Excel_Shared/3_Spot_Rates.xlsm

Rather than posting a new workbook, I am leaving the old workbook, but I added a new sheet called “Fourth Method”. As I was looking through some of my old Excel workbooks, I came across this method for calculating spot rates, that I should have used in the original post.

For an explanation of the first three bootstrap methods, see my post “3 -Ways to Bootstrap Spot Rates for the Treasury Yield Curve” at

http://pistulka.com/Other/?p=2089

After viewing the first three methods, come back to this post for an explanation of the forth method.

Method four on sheet “Fourth Method”:

This method may or may not be easier to follow than the first three. The difference between the formulas on sheets “Formula” and “Fourth Method” is that the calculations on the forth method are broken out into two extra columns. As was true with the other methods, the 6-month and 1-year Treasury yields are considered to already be spot rates, in that they are Treasury bills with no coupons, only a final payment of principal.

The first new column are the discount factors. This is a running present value of \$1, calculated using the spot rate and term for each row. The second column is the present value of each coupon payment using the sum of all the previous discount rates multiplied by the semiannual coupon payment.