Bootstrapping Spot Interest Rates - HELP!!!

CFA Level II Fixed Income
#1

I am really struggling working through spot interest rate bootstrapping calculations. I understand the concept (I think) in terms of it is calculating the implied future spot rate in order to plot a par spot rate curve.

I just do not know how I should be punching this into my BAII. Any help with the key strokes etc would be massively appreciated. I believe there is some algebra involved too, which is maybe the difficulty.

Examples, bootstrapping:

1y par spot rate 5%

2y par spot rate 5.35%

3y par spot rate 5.75%

and/or

1y par spot rate 1%

2y par spot rate 1.2%

3y par spot rate 1.25%

4y par spot rate 1.4%

#2

What you need to bootstrap, spot or forward rate? And for which period?

#3

I think that the first problem we need to solve is one of terminology.

There are par rates, and there are spot rates. There’s no such thing as a par spot rate.

#4

Sorry, bootstrap par rates to determine par spot curve

#5

You bootstrap par rates to determine the spot rates… not par spot rates.

The examples in the book are probably going to be easier to understand than someone showing you over the message board.

Year 1 Spots: You use the year 1 par rate, which has a known coupon and payouts to determine year 1 spots.

Year2 Spots: You use the year 2 par rates which has a known coupon and payouts, and you use the year 1 spot rate you just calcuated, to determine year 2 spot rate

Year3 Spots: You use year 3 par rate, which has a known coupon and payout, and using year 1 spot and year 2 spot you just calculated, to determine year 3 spot rate.

The BAII calculation is just pure algebra.