Practice Questions 89 - 8.3440% 5.9196% 8.0441% 3.500%...

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Practice for Chapter 8 and 9 Chapter 8 a) The daily yields for 26 days are given below. Compute the daily percentage change in yield for each day assuming continuous compounding. T Yt 0 7.17400 1 7.19400 2 7.21800 3 7.15100 4 7.02500 5 7.02400 6 7.03000 7 7.02000 8 6.96400 9 6.90400 10 6.89671 11 6.85300 12 6.87100 13 6.88300 14 6.87500 15 6.87800 16 6.80400 17 6.84300 18 6.79500 19 6.79500 20 6.85400 21 6.81000 22 6.77300 23 6.86700 24 6.88700 25 6.88100 b) Compute the daily standard deviation Practice 2 Based on the daily standard deviation computed in Practice 1, compute the annualized standard deviation based on the following number of days i) 250, ii) 260 and iii) 365
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Chapter 9 Practice 1 For the hypothetical issuer whose on-the-run yield was given in Section IV, the binomial interest rate tree below is based on 20% volatility. Using 4-year on-the-run issue, show that the binomial interest tree below does produce a value equal to the price of the 4-year issue. 12.0003%
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Unformatted text preview: 8.3440% 5.9196% 8.0441% 3.500% 5.5931% 3.9680% 5.3921% 3.7492% 3.6144% Practice 2 Show that the value of an option free bond with four years to maturity and a coupon rate of 6.5% is $104.643 if volatility is assumed to be 20% Practice 3 Suppose that the volatility assumption is 20% rather than 10% and therefore the binomial interest rate tree is the one shown in Practice 1. a) Compute the arbitrage-free value for the 4-year 6.5% coupon bond callable at par beginning Year 1 based upon 20% volatility b) Compare the arbitrage-free value for this bond based upon 20% volatility and 10% volatility as computed in exhibit 8 Practice 4 Show that if 15% volatility is assumed the OAS is -6 basis points Practice 5 Using the binomial interest rate tree based on 20%, show that the value of this putable bond is 106.010. Assume the bond is non-callable...
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This note was uploaded on 04/04/2012 for the course ECON 311 taught by Professor Ford during the Spring '11 term at University of San Francisco.

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Practice Questions 89 - 8.3440% 5.9196% 8.0441% 3.500%...

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