• +44-190-022-0819 +44-190-022-0819
  • +1-248-268-9041 +1-248-268-9041
  • +61288800241 +61288800241

SEARCH SOLUTION

Search your solution from list of 1000+ questions

29-08-2018

Product code: Accounts-AW527

 

Fixed Income Securities – Exercise Problem Set

Topic D: Term Structure and Modeling of Interest Rates

Problem #1: Spot Rates (slide 21)

Today you obtain the market data on Treasuries up to year 2.  Assume a par value of $100 for all Treasuries.  The coupon rate, yield to maturity and price of all the Treasuries are provided in the Table below:

Period

Years

Coupon Rate

Yield to Maturity

Price

Spot Rate

1

0.5

0.00%

3.00%

$98.52

 

2

1.0

0.00%

3.30%

$96.78

 

3

1.5

3.40%

3.51%

$99.85

 

4

2.0

4.00%

3.92%

$100.16

 

 

  1. What is the spot rate for t=0.5 year?
  2. What is the spot rate for t=1.0 year?
  3. Compute the theoretical spot rate for t=1.5 year. 
  4. Compute the theoretical spot rate for t=2.0 year. 

     (e)  Use the spot curve you constructed to compute the arbitrage-free value of a Treasury coupon bond with 2 years to maturity and a coupon rate of 3

Problem #2: Par Rates; Implied Forward Rates (slide 31)

Using the Treasury spot rates shown in Exhibit 5-7, compute the followings:

  1. The 3-year par rate, i.e., the coupon rate that would make

the price of a 3-year coupon bond equal to its par value.

  1. the six-month forward rate two years from now.
  2. the two-year forward rate eight years from now.

Problem #3: Interest Rate Volatility (slide 52)

Suppose that the following monthly interest rate volatility estimates are computed as:    absolute rate change = 8.56 basis points and percentage rate change = 5.27%.

 (a) What is the annualized volatility for the absolute rate change?

 (b) What is the annualized volatility for the percentage rate change?

 

Download Questions

Product code: Accounts-AW527

Related Questions in (Accounting)

13-01-2018

Solution: The Journal of Helene Berr and Rue Ordener, Rue Labat 2 evidences that prove the difficulty and destructiveness that the people had to face in those four years. As mentioned by Berr (2009, p.23), in h ...

18-01-2018

Solution: Employee communication highlights the sharing of ideas and information. In this competitive business world, information exchange is essential among employees to develop team performance effectively. m ...

18-01-2018

Solution: As per Section 1 of the Thirteenth year plan describes about China’s two key objectives that will be accomplished if the National People’s Congress or the standing committee of this party passes t ...

18-01-2018

Solution: (Feldman 2005) reference information extraction to be one of the weightiest pre-processing method that escalates the text mining potential significantly. Pre-processing is an essential part in informa ...

18-01-2018

Solution: The pro forma income statement represents a trending statement that includes the probable net income value for the company considering the current growth and decline rates valid throughout the period ...

18-01-2018

Solution: Mode is defined as the value which occurs more frequently in the data set. The mode for non-business is 82 while for business is only 59. P value can be calculated from z table . As per z table p valu ...

18-01-2018

Solution: ABC assumes that there are different activities involved in different processes that cause costs andthe product, services, and customers are reasons for those activities. The UK customer segment is br ...

19-01-2018

Solution: Residual earnings valuation method is used to calculate the intrinsic value of the stock based on the expected residual income of the company in the coming years. The residual income is discounted bac ...