a. Consider a hypothetical scenario where you have a default-free floating rate bond and a corporate floating rate bond with maturities of 5 years. The current default- free floating rate is 4% and the corporate floating rate is 6%. While the rates are quoted annually, both bonds pay coupons semi-annually. The face value of both bonds is $100. Describe step-by-step how you would set up the positions (long and short) to mimic the cash flows of a credit default swap. What would be the CDS rate? b. Assume the "loss given default” is $40 in the problem above. Suppose the loss given default changes and becomes $60. How would the CDS rate change given the increase in "loss given default." c. Suppose the probability of default before 5 years is 2% in the above problem. Now imagine that the probability of default falls to 1%. How would the CDS rate change?

Consider a bond that has just paid a semi-annual coupon and has exactly 2.5 years to maturity and an annual coupon rate of 3.5%. Price the bond with a yield 4.2%. This is an annuity calculation and the stated yield and stated coupon are double the semi-annual yield and coupon. Use Table 6.1. (Do not round Intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign In your response.) Price of the bond $

Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000. Maturity (Years) 1 2 3 4 5 Required: a. Calculate the forward rate of interest for each year. b. How could you construct a 1-year forward loan beginning in year 3? c. How could you construct a 1-year forward loan beginning in year 4? Required A Price $940.93 Complete this question by entering your answers in the tabs below. 868.39 800.92 735.40 670.48 Required B Maturity (years) 2 3 Calculate the forward rate of interest for each year. Note: Round your answers to 2 decimal places. Required C Forward Rate % % Prov 12 of 12 Next

Solve each of the following questions using both pricing formulas and Excel.  2. A zero-coupon bond has a face value of $21,000 and a maturity of 8 years. Similar bonds have an interest rate of 5% per year. What is the price of this bond?

1. table: Consider following three bonds whose features are summarized in the following Maturity (Years) Coupon Rate (%) YTM (%) Answer the following question by using Excel and show the cells that you use to calculate the values. 2 5 5.5 6 5 6 6 10 6.5 The face value of bonds is $100, YTM stands for yield to maturity, coupons are received annually. We structure a butterfly strategy (combination of bullet and barbell) in the following way: We sell 10000 5-year maturity bonds. We buy 5000 2-year maturity bonds and 5000 10-year maturity bonds. a) Suppose that one month later the YTM curve has changed. A flattening movement has happened so that the curve rotates around the body. We consider the following movement "+50/0/-50" meaning that the short wing YTM increases by 50 bps, the body does not move and the long wing YTM decreases by 50 bps. Compute the total return of the butterfly. b) Same question with a steepening movement "-50/0/+50".

If you have a coupon bond, its face value is $1,000 and the coupon rate is 4%. Complete the following table, then calculate the rate of return for the bond. If you know that it was purchased at the nominal value, comment on the results. due date return at maturity the price 2 0.02   3 0.04   5 0.06   Present Value Annuity value % n value % n 0.961 0.02 2 1.97 0.02 2 0.925 0.04 2 1.89 0.04 2 0.889 0.04 3 2.78 0.04 3 0.906 0.02 5 4.71 0.02 5 0.747 0.06 5 4.21 0.06 5

Suppose you looking at a certain bond whose current market price is $935. The bond has a 6.00% coupon rate, pays annual coupon payments and has a 12 year maturity. Assume also that the current open market YTM is 7.00%. Based upon this information, answer the following questions. [3 parts] Show all work. Clearly label your answers for Part A, Part B, and Part C. Carry all calculations out to four (4) decimal places (except dollars and cents). Highlight in bold your answer. a) Based upon the bond’s features, determine what the bond’s current price ($) should be. (Use the present value method to determine the price)  b) Based upon your calculated price in Part 1, is the open market price of the bond correct? If the bond is over/under priced, by how much is the bond mispriced?  c) Based strictly upon your answer in part 2, would you buy the bond? Explain your answer.

In this problem we are going to calculate bond prices and returns Suppose that the yield on a 3 year note is 2.5%. a) Calculate the price of the 3 year note (face value = $1000) with three annual coupon payments (after year 1, after year 2, after year 3) of $30, i.e., the coupon rate is 3.0%. b) Is this note selling at a discount or premium? Explain. Suppose that after one year and after you receive one coupon payment, you decide to sell your note. Your note is now a two year note with one coupon payment after 1 year and another after year 2. Consider the following two scenarios: Scenario #1 - interest rates on what is now a two year note (i.e., your note) have fallen to 1.00% Scenario #2 - interest rates on what is now a two year note (i.e., your note) have risen to 4% c) given scenan d) Calculate the price that you can sell your note for under scenario #1 and the associated rate of return when you sell your note Calculate the price that you can sell your note for under scenario #2…

This is the entire question!   Just answer A,B,C (Don't worry about the numbers for A&B) and answer the rest of the question.     Complete the following table by identifying the appropriate corresponding variables used in the equation. Unknown Variable Name   A (Bond Semi coupon annul payment, annual coupon payment,Bonds market price)   B (Bond's semi coupon, annual coupon payment,par value) $1,000 C Semiannual required return     Based on this equation and the data, it is (unreasonable,reasonal)   to expect that Oliver’s potential bond investment is currently exhibiting an intrinsic value less than $1,000.   Now, consider the situation in which Oliver wants to earn a return of 6.75%, but the bond being considered for purchase offers a coupon rate of 8.75%. Again, assume that the bond pays semiannual interest payments and has three years to maturity. If you round the bond’s intrinsic value to the nearest whole dollar, then its intrinsic value…

Let's denote the price of a nonmaturing bond (called a consol) as P. The equation that indicates this price is Pn =-, where I is the annual net income the bond generates and r is the nominal market interest rate. a. Suppose that a bond promises the holder $200 per year forever. The nominal market interest rate is 6 percent. Calculate the bond's current price: S. (Round your answer to the nearest whole dollar.)