Answer 1-2

Ans 1 Ans 2
Maturity Key rate Duration OLD TABLE Working Note:
0.25 0.06 Maturity Key rate Duration Maturity Yield Change
2 0.73 0.25 0.06 5 Year 0.3409
5 0.34 2 0.73 20 Year 1.2261
10 3.09 5 0.34
15 0.63 10 3.09
20 1.22 15 0.63
25 2.19 20 1.22
27 3.65 25 2.19
Total 11.91 27 3.65
Total 11.91
 NEW TABLE
Maturity Key rate Duration
0.25 0.06
2 0.73
5 0.34
10 3.09
15 0.63
20 1.23
25 2.19
27 3.65
Total 11.92
Answer 3

Given Information: Solution:

T-Bill 2 Year T note 3 year T Note Spot Rates
Maturity 1 Maturity 2 Maturity 3 Z1 5.00%
Price 95.2381 Price 100.9232 Price 102.6730 Z2 5.51%
YTM 5% YTM 5.50% YTM 6% Z3 6.05%
Coupon 0% Coupon 6% Coupon 7%
Find 2 year Spot rate
P(CB) = P(1) +
P(2)

P1 ₹ 5.71
P2 ₹ 95.21

P(CB) 100.9232

Z2 5.51%

Find 3 year Spot rate

P(CB) = P(1) + P(2) + P(3)

P1 ₹ 6.67
P2 ₹ 6.29
P3 ₹ 89.72

P(CB) 102.6730

Z3 6.05%
Answers 4-6

0 1 2
12 112

116.49
12
104.49 112
7.1826%
Ans 4
Price of Option Free Bond 112.28 Price of Callable Bond
4.5749%

118.34
12
106.34 112
5.3210%
 0 1 2 0 1
12 112 12

116.49 117.00
12 12
104.49 112 105.00
7.1826% 7.1826%
Ans 5 Ans 6
111.64 Price of Puttable Bond 112.52
4.5749% 4.5749%

117.00 118.34
12 12
call option cost 105.00 112 put option cost 106.34
0.64 5.3210% 0.24 5.3210%
 2
112

112

112