1

3 year TREASURY coupon bond 10% is priced at 96

3 year corporate bond with coupon of 10% is priced at 85
What's Nominal Spread

2
T-Bill 1 year maturity is priced at a yield of 6%
2 year annual pay treasury coupon bond 10% is priced at 100
2 year corporate coupon bond 10% is priced at 96
What's ZVS?

3
6 Month T Bill trades at 6%
1 year Tbill trades at 6.5%
Tbill with duration 1.5 years trades at 7%
2 Year semi annual Govt bond with 5% coupon is priced at 93
2 year semi annual corporate bond with coupon of 7% is priced at 93
What is the nominal spread?
What is the ZVS?
 LIBOR
Days Spot Rate %FWD 30 DAY
30 3% 3.0%
60 3.500% 4.0%
90 4.000% 5.0%
120 5.000% 7.9%
150 6.000% 9.8%
180 6.500% 8.8%
210 6.250% 4.6%
240 6.000% 4.1%
270 5.600% 2.3%

Q
find forward rate for a loan
90 days hence, for 150 days

Q
Investor is long a FRA for 6 month loan, 3 months hence at 7%
Notional principle is 10,000,000
After 3 months the spot rate for 6 months is 5.25%
What is the gain or loss to the party?
Q
For the above contract after 2 months the spot rates are as shown
1M 4%
7M 5%
What is the value of the forward contract after 2 months?

Q
Investor is short a fwd contract with NP = 20mn, at a fwd rate of 6%
Fwd contract gives comittment to go in loan for 90 days after 30 days
Afer 10 days the LIBOR rates are as shown
Days LIBOR
20-Day 5%
110-Day 7%
What is gain or loss to investor?
2 year coupon bond is trading at 104
coupon rate 10%
yield volatility is 20%
create the interest rate tree
consider current 1 year rate is 8% callable at 101 after 1 year

2 year coupon bond is trading at 98 callale at 98.5

coupon rate 8%
yield volatility is 20%
create the interest rate tree
consider current 1 year rate is 7%

3 year coupon bond is trading at 98

coupon rate 8%
yield volatility is 15%
create the interest rate tree
consider current 1 year rate is 7%
2 year coupon bond is trading at 103.5 Callable Bond
coupon rate 9% Call schedule to be called at
create the interest rate tree - given 1 year bond rate is 7%
volatility is 20%

3 Year coupon bond trades at 105

coupon rate is 12% Bond callable at
create the interest rate tree - given 1 year bond rate is 10%
volatility is 30%
101 after 1 year

putale at 98.5
Callable Bond Putable ond
Call schedule to be called at 101 after 1 year Put schedule 101 after 1 year

Bond callable at 102 Bond putable at

Bond putable at 102
Q
You want to design a 2 year callable bond. Following are the interest rate details prov
to you. Current 1 year rate is 5.55% and r1,l is 6.25%, yield volatility is 15%. The bond
a coupon of 8% annually and has a par value of 100. It is callable at par in one year. W
the price of the call option?
 erest rate details provided
tility is 15%. The bond pays
e at par in one year. What is