SPECIAL NOTE: Please note that no questions will be answered by either the
TAs or by the instructor. If you are uncertain as to how to proceed in a question,
please make the most common sense assumptions. If necessary, state the
additional assumptions you
University of Waterloo
MATBUS 471 Fixed Income Securities
Instructor: Peter Wood
Date: November 1th, 2012
Time: 2:30 p.m.
Duration: 80 minutes
Number of Pages: 8 (including the cover page)
FOR EXAMINERS USE ONL
Assignment #3 Due Nov 27th at noon in the drop boxes outside the MC Tutorial Centre.
You will likely want to use Excel or something similar to answer many of these questions. It
suffices to attach an annotated copy of an Excel printout to your
Assignment #1 Due Wednesday October 1 at noon in the drop boxes. (Box 16, 4th floor MC)
Please assume the following in this assignment:
All rates are BEY, unless otherwise indicated. Use actual/actual day count convention for bonds.
Let's make money out of "thin air"
Assume we have a portfolio of 100 1 year bonds, all rated BB, each of $1 million in size.
Assume all bonds trade at par.
Build and value the tranches of a CDO assuming:
1. The default correlation is 0.005
2. Split the CD