USC Marshall School of Business
Applied Finance in Fixed Income Securities
Juhani Linnainmaa
FBE 535
Fall 2016
Problem Set 1
(Due: Thursday, September 8th, in class)
Unless specified as an Excel Problem, all of these problems can (and should) be solved wi

USC Marshall School of Business
Applied Finance in Fixed Income Securities
Juhani Linnainmaa
FBE 535
Fall 2016
Problem Set 2
(Due: Thursday, September 29th, in class)
Unless specified as an Excel Problem, all of these problems can (and should) be solved w

Last Name:
First Name:
FBE 535 Sample Final Exam
Professor Scott Joslin
Spring 2016
Instructions:
The exam lasts 120 minutes. It consists of seven questions. Please answer all of them.
Credit for each question is noted below.
Question
Points Possible Po

USC Marshall School of Business
Applied Finance in Fixed Income Securities
Scott Joslin
FBE 535
Spring 2016
Extra sample problems on Introduction to Term Structure Model
See BTAS Chapter 7.
Problem 3
Suppose that the 1-year rate (EAR), rt (1), evolves as:

USC Marshall School of Business
Applied Finance in Fixed Income Securities
Scott Joslin
FBE 535
Spring 2016
Sample problems on Interest Rate Risks/Derivatives
Problem 1
Consider a liability where you are required to make payments of $10M in 5 years and $2

USC Marshall School of Business
Applied Finance in Fixed Income Securities
Scott Joslin
FBE 535
Spring 2016
Quiz #5
(Due: Monday April 25th at midnight or in class.)
This is a take-home quiz. You may use your computer and may consult any reference that yo

USC Marshall School of Business
Applied Finance in Fixed Income Securities
Scott Joslin
FBE 535
Spring 2016
Sample problems on Empirical Risk
Problem 1
In this problem, we use monthly data from Federal Reserve Economic Database (FRED). From FRED,
we use m

USC Marshall School of Business
Applied Finance in Fixed Income Securities
Scott Joslin
FBE 535
Spring 2016
Sample problems on Swaps
Problem 1
Suppose that the term structure is flat at 3%/year (EAR).
(a) What is the value of 10 years of annual floating c

Midterm Problem Set
Problem 1
Suppose that the current 1-year rate is 3% and the 2-year rate is 4% (both
e_ective annual rates.)
Assume that you can borrow and lend at these rates.
(a) Suppose that someone is willing to sell (or buy) a $100 face value 2-y

USC Marshall School of Business
Applied Finance in Fixed Income Securities
Scott Joslin
FBE 535
Spring 2016
Sample problems on Multifactor RIsk
Problem 1
Consider the initial yield curve where the rates are forward rates quoted as an APR with semi-annual

USC Marshall School of Business
Applied Finance in Fixed Income Securities
Scott Joslin
FBE 535
Spring 2016
Sample problems on Multifactor RIsk
Problem 1
Consider the initial yield curve where the rates are zero rates quoted as an APR with semi-annual
com

USC Marshall School of Business
Applied Finance in Fixed Income Securities
Scott Joslin
FBE 535
Spring 2016
Sample problems on Interest Rate Risks/Derivatives
Problem 1
Consider a liability where you are required to make payments of $10M in 5 years and $2

USC Marshall School of Business
Applied Finance in Fixed Income Securities
Scott Joslin
FBE 535
Spring 2016
Sample problems on Forwards/Futures
Problem 1
Suppose that the term structure is flat at 3%/year (EAR).
(a) Consider a forward, expiring in 1 year,

Applied Finance in Fixed Income Securities
Prof. Scott Joslin
USC Marshall
FBE 535
Spring 2016
Outline of the Lecture
Empirical Measures of Risk
Readings:
BTAS Chapter 6
c
USC
1/33
Overview
So far, we have talked about univariate/multivariate measures or

Applied Finance in Fixed Income Securities
Prof. Scott Joslin
USC Marshall
FBE 535
Spring 2016
Outline of the Lecture
Note and Bond Futures
Readings:
BTAS Chapter 14
c
USC
1/26
Note and Bond Futures
Futures on Treasury notes and bonds are traded on the Ch

Applied Finance in Fixed Income Securities
Prof. Scott Joslin
USC Marshall
FBE 535
Spring 2016
Outline of the Lecture
Futures and Forwards
Readings:
BTAS Chapter 13
Some material in BTAS Chapter 1
c
USC
1/23
Bond Price Quotations
When buying a bond that p

Applied Finance in Fixed Income Securities
Prof. Scott Joslin
USC Marshall
FBE 535
Spring 2016
Outline of the Lecture
Multi-factor Interest Rate Risk
Readings:
BTAS Chapter 5
c
USC
1/24
Recall Univariate Risk Measures
For flat term structure at rt = y of

Applied Finance in Fixed Income Securities
Prof. Scott Joslin
USC Marshall
FBE 535
Spring 2016
Outline of the Lecture
Repos
Readings:
BTAS Chapter 12
c
USC
1/15
Repurchase Agreements
Repurchase agreements facilitate shorting and cash management
One party

Applied Finance in Fixed Income Securities
Prof. Scott Joslin
USC Marshall
FBE 535
Spring 2016
Outline of the Lecture
Swaps
Readings:
BTAS Chapter 16 (a few elements from Ch. 15)
c
USC
1/25
Interest Rate Swaps
Interest rates swaps are a derivative interes

Applied Finance in Fixed Income Securities
Prof. Scott Joslin
USC Marshall
FBE 535
Spring 2016
Outline of the Lecture
Returns
Interest Rate Risk
DV01, Duration, Convexity
Readings:
BTAS Chapter 3 and 4
c
USC
1/43
Class note
The first quiz will be in class

Applied Finance in Fixed Income Security
Prof. Scott Joslin
USC Marshall
FBE 535
Spring 2016
Outline of the Lecture
Introduction to FBE 535
What are derivatives?
Futures and Forwards
c
USC
1/53
What is FBE 535 about?
Familiarity with major markets and ins

Last Name:
First Name:
FBE 535 Sample Final Exam
Professor Scott Joslin
Spring 2016
Instructions:
The exam lasts 120 minutes. It consists of seven questions. Please answer all of them.
Credit for each question is noted below.
Question
Points Possible Po

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.784855
R Square 0.615998
Adjusted R 0.614714
Standard E 0.139155
Observatio
301
ANOVA
df
Regression
Residual
Total
SS
MS
F Significance F
1 9.287783 9.287783 479.6417 4.23E-064
299 5.789837 0.019364
300 15

USC Marshall School of Business
Applied Finance in Fixed Income Securities
Scott Joslin
FBE 535
Spring 2016
Quiz #3
(Due: Wednesday March 30 by midnight by email or at my office Hoffman Hall 712)
This is a take-home quiz. The standard rules for the proble