Explanation:
Bootstrapping is a technique used to derive zero-coupon rates (spot rates) from the par yields of coupon-paying government bonds. The process works sequentially, starting with the shortest maturity bond and working forward, using the known par yields to solve for the unknown spot rates. This method is fundamental in fixed income analysis for constructing the spot rate curve from observable market data.
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The process of bootstrapping is most likely used to:
A
derive the forward rate curve using the spot rate curve.
B
adjust for the shape of the par curve when deriving the spot rate curve.
C
derive zero-coupon rates using the par yields of coupon-paying government bonds.