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
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
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
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 1 solution
FIN7037 Fixed Income
College of Business University of Cincinnati
Fall 2016
3. Answer the following questions. (5 points)
(a) The portfolio manager of a tax-exempt fund is considering investing $500,000 in a
debt instrument that pays an annu
FIN7037 (FIN5037)Fixed Income
Carl H. Lindner College of Business University of Cincinnati
Fall 2016
Instructor:
Phone:
Office:
Email:
Class Hours:
Class Room:
Office hours:
Prof. Hui Guo
(513) 556-7077
418 Carl H. Lindner Hall
[email protected]
Monday 6:00p
HW 3
FIN7037 Fixed Income
Carl H. Lindner College of Business University of Cincinnati
Fall 2015
Due October 17, 2016
Part 1
1. Use the federal funds futures data (http:/www.cmegroup.com/trading/interest-rates/stir/30day-federal-fund.html) to construct th
HW 4
FIN7037 Fixed Income
College of Business University of Cincinnati
Fall 2016
Due 10/31/2016
1. Do you expect that the FOMC will raise the federal fund rate in the next weeks meeting? At
the meeting, how would FOMC signal its intention for the December
FIN7037 Fixed Income
Fall 2016
Instructor: Hui Guo
8/29/2016
1
Yellens Talk at 2016 Jackson Hole Meeting
In light of the continued solid performance of the labor
market and our outlook for economic activity and
inflation, I believe the case for an increas
HW 3
FIN7037 Fixed Income
Carl H. Lindner College of Business University of Cincinnati
Fall 2016
Part 2
1. What are the main differences between corporate bonds and US Treasury bonds? (3 points)
Answer: Corporate bonds have default risk because issuers ha
Term Project
FIN7037 Fixed Income
Fall 2016
After the 2008 financial crisis, the FOMC kept the federal funds rate at its lowest bound in a range
of 0 to of a percentage point until December 2015. The rate has stayed pat since then.
For the term project, w
HW 2
FIN7037 Fixed Income
Lindner College of Business University of Cincinnati
Fall 2015
Due 9/28/2015
Q3. The annual coupon rate for a TIPS is 6%. Suppose that an investor purchases $1,000 of par
value (initial principal) of this issue today and that the
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
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
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
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
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
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
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