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Homework 2
Wei Yang
Assigned: Apr 7
Due: Apr 14
Each problem counts as 10 points.
1
Quoting Tbills
Tbills 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 6month Tbills. Treat 6 months as 180 days.
(1.1)
What is the quote?
(1.2)
What is the yield? Use semiannual compounding.
2
DV
01
You want to invest $100M in the bond market. Suppose you invest in 5year bonds paying
semiannual 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 2year and 10year 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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 Spring '10
 WeiYang

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