HW 3 solution
Part 1
1. What is the main difference between corporate bonds and US Treasury bonds? (5 points)
Answer: Corporate bonds have default risk because issuers have limited liability.
2. What is the absolute priority rule? Does it always hold in p
Solution of Fixed Income Midterm Exam I
Professor Hui Guo
1. Suppose that a life insurance company has guaranteed a payment of $16 million to a pension
fund 6 years from now. The life insurance company receives a premium of $10 million from the
pension fu
HW 4
solution
1.
Efficient Market Hypothesis (20 points)
(a) What is the efficient market hypothesis?
Efficient Market Hypothesis: Prices of assets (e.g., stocks and bonds) at time t incorporate all
available information at time t
(b) Does the efficient m
CHAPTER 15 ASSET-BACKED SECURITIES
CHAPTER SUMMARY
A security created by pooling loans other than residential prime mortgage loans and commercial mortgage loans is referred to as an asset-backed security (ABS). The market classifies securities backed by s
FIN7037 Fixed Income
Fall 2016
Instructor: Hui Guo
8/21/2016
1
Prof. Hui Guo
Worked as an economist at Federal Reserve Bank in St. Louis for 7 years
Federal Reserve System is the US central bank
Federal Reserve Board and 12 regional banks: monetary poli
FIN7037 Fixed Income
Topic2:TreasurySecuritiesandTerm
StructureofInterestRates
Instructor: Hui Guo
9/6/2016
HuiGuoFIN7037FixedIncome
1
Treasury Securities
9/6/2016
HuiGuoFIN7037FixedIncome
2
Treasury securities
Issued by U.S. Department of the Treasury
HW 2
FIN7037 Fixed Income
Lindner College of Business University of Cincinnati
Fall 2016
Due 9/26/2016
Q1. The FOMC will meet on September 20 and 21, 2016. Find the press release at the link
https:/www.federalreserve.gov/monetarypolicy/fomccalendars.htm a
HW 1
FIN7037 Fixed Income
College of Business University of Cincinnati
Fall 2016
Due 9/12/2016
Part 1
1. We discussed briefly the federal funds rate in the class. Read the Wikipedia entry
Federal funds rate (https:/en.wikipedia.org/wiki/Federal_funds_rate
FIN7037 Fixed Income
Instructor: Hui Guo
8/21/2016
Hui Guo FIN7037 Fixed Income
1
Pricing of Bonds
8/21/2016
Hui Guo FIN7037 Fixed Income
2
Time Value of Money
Future value of $P0 invested at an interest rate r per period
8/21/2016
Period
Future Values
0
HW 5
FIN7037 Fixed Income
College of Business University of Cincinnati
Fall 2012
Due 12/6/2012
1. Constructing a risk-neutral probability binomial short-term interest rate model
1a. We observe the following spot rate curve. Assume semiannual compounding a
Period
Spot Rate
0.5
1
1.5
2
r1
r2
r3
5.54%
5.45%
5.47%
5.50%
PV of Zero
PV of zero in model
diff
sigma
0.9730466089
12.02%
0.9476494178
0.9476494123 -5.51890266820E-009
0.9222416339
0.9222416351 1.20718368635E-009
0.8971657337
0.8971657285 -5.20245779789
FIN7037 Fixed Income
Fall 2012
Instructor: Hui Guo
8/27/2012
1
Prof. Hui Guo
Worked as an economist at Federal Reserve Bank in St. Louis for 7 years
Federal Reserve System is the US central bank: consists of Federal
Reserve Board and 12 regional banks
F
FIN7037 Fixed Income
Instructor: Hui Guo
8/27/2012
Hui Guo FIN7037 Fixed Income
1
Pricing of Bonds
8/27/2012
Fixed Income Hui Guo
2
Time Value of Money
Future value of $P0 invested at an interest rate r per period
Period
0
P0
1
P1=P0(1+r)
2
P2=P1(1+r)=P0(
FIN7037 Fixed Income
Instructor: Hui Guo
10/23/2012
Hui Guo FIN 7037 Fixed Income
1
Topic 4
Active Bond Strategies, Indexing, and Immunization
10/23/2012
Hui Guo FIN 7037 Fixed Income
2
Bond Portfolio Strategies
Active strategies
Passive strategies
Indexi
FIN7037 Fixed Income
Topic2:TreasurySecuritiesandTerm
StructureofInterestRates
Instructor: Hui Guo
9/11/2012
HuiGuoFIN7037FixedIncome
1
Treasury Securities
9/11/2012
HuiGuoFIN7037FixedIncome
2
Treasury securities
Issued by U.S. Department of the Treasury
HW 2 Solution
FIN7037 Fixed Income
College of Business University of Cincinnati
Fall 2012
Q1. The coupon rate for a TIPS is 3%. Suppose that an investor purchases $10,000 of par value
(initial principal) of this issue today and that the semiannual inflati
HW 1
FIN7037 Fixed Income
College of Business University of Cincinnati
Fall 2012
1. Suppose that a life insurance company has guaranteed a payment of $14 million
to a pension fund 4 years from now. If the life insurance company receives a
premium of $10 m
FIN7037 Fixed Income
Fall 2012
Instructor: Hui Guo
11/15/2012
1
Topic 5 (part 1)
Interest Rate Models
11/15/2012
2
Risk Premium and Risk-Neutral Probability Measure
11/15/2012
3
Term-Structure of Spot Rates
Period
Years
Prices of
Zeros
(par=1000)
Annualiz