Homework 2

Homework 2 - Fin 448: Fixed-Income Securities Homework 2...

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Homework 2 Wei Yang Assigned: Apr 7 Due: Apr 14 Each problem counts as 10 points. 1 Quoting T-bills T-bills have a special convention for quoting the prices. quote = 100 - price 100 × 360 d Here, d is the maturity measured in days. This quote is not the price, nor the yield or the interest rate. Suppose the price is 98 per $100 for 6-month T-bills. Treat 6 months as 180 days. (1.1) What is the quote? (1.2) What is the yield? Use semi-annual compounding. 2 DV 01 You want to invest $100M in the bond market. Suppose you invest in 5-year bonds paying semi-annual coupons. The yield is 5% and the coupon rate is 4%. (2.1) What is the DV 01 of the investment? Such exposure to interest rate risk is undesirable. Suppose you could choose instead to invest the $100M in a portfolio of 2-year and 10-year coupon bonds. Both pay 4% coupons, and the bond yields are 4% and 5%, respectively. You want to construct a zero DV 01 portfolio whose total value is $100M. (2.2)
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Homework 2 - Fin 448: Fixed-Income Securities Homework 2...

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