WEB-BASED PROBLEMS
Problem 1
The student answers a series of questions based on the most recent financial statements of
Vodafone, a British company. The questions involve an analysis of the cash flow statement and
changes in the parents percentage ownersh
FIXED-INCOME SECURITIES
Chapter 2
Bond Prices and Yields
Outline
Bond Pricing
Time-Value of Money
Present Value Formula
Interest Rates
Frequency
Continuous Compounding
Coupon Rate
Current Yield
Yield-to-Maturity
Bank Discount Rate
Forward Rates
Bond Prici
FIXED-INCOME SECURITIES
Chapter 6
Beyond Duration
Beyond Duration
Limits of Duration
Duration hedging is
Very simple
Built on very restrictive assumptions
Assumption 1: small changes in yield
The value of the portfolio could be approximated by its fi
FIXED-INCOME SECURITIES
Chapter 1
Bonds and Money-Market
Instruments
Outline
Overview of Bond Markets
Bond Characteristics
Floating-Rate Notes
Inflation-indexed bonds
Issuers of Bonds
Government Bonds
Municipal Bonds
Corporate Bonds
Money-Markets
FIXED-INCOME SECURITIES
Chapter 2
Bond Prices and Yields
Outline
Bond Pricing
Time-Value of Money
Present Value Formula
Interest Rates
Frequency
Continuous Compounding
Coupon Rate
Current Yield
Yield-to-Maturity
Bank Discount Rate
Forward Rates
2
Bond Pri
FIXED-INCOME SECURITIES
Chapter 10
Swaps
Outline
Terminology
Convention
Quotation
Uses of Swaps
Pricing of Swaps
Non Plain Vanilla Swaps
Terminology
Definition
Agreement between two parties
They exchange interest payments
Computed on a notional princip
FIXED-INCOME SECURITIES
Chapter 4
Deriving the Zero-Coupon
Yield Curve
Outline
General Principle
Spot Rates
Recovering the Term Structure
Direct Methods
Interpolation
Indirect Methods
Splines
Term Structure of Credit Spreads
Last Time
The current price o
FIXED-INCOME SECURITIES
Chapter 11
Forwards and Futures
Outline
Futures and Forwards
Types of Contracts
Trading Mechanics
Trading Strategies
Futures Pricing
Uses of Futures
Futures and Forwards
Forward
An agreement calling for a future delivery of an as
FIXED-INCOME SECURITIES
Chapter 3
Term Structure of Interest
Rates: Empirical Properties
and Classical Theories
Outline
Types of TS
Shapes of the TS
Dynamics of the TS
Stylized Facts
Theories of the TS
Types of Term Structures
The term structure of inter
FIXED-INCOME SECURITIES
Chapter 14
Bonds with Embedded Options
(Introduction)
Outline
Callable and Putable Bonds
Convertible Bonds
Options on Bonds
Callable Bonds and Putable Bonds
Bond with Embedded Options
Callable bonds
Issuer may repurchase at a p
Example 1
$7
59 days
126 days
Nov. 15, 2000
$7
306 days
$7
$107
180 days
Jan. 13, 2001
Nov. 15, 2001
Nov. 15, 2002
Nov. 15, 2003
P=?
Assume that appropriate discount rate for this bond is 6.75% compounded annually.
a)
b)
c)
d)
What is the full price (or d
Exercise 11.6
Underlying security for a Eurodollar futures contract is the three-month Eurodollar
deposit rate.
We know that Invoice Price of a Eurodollar futures contract is given by:
Days to Maturity
Invoice Price P 1,000,000 1 - Rate
360
For a future
WEB-BASED PROBLEMS
Problem 1
The following answers are based on Vodafones March 31, 2009 consolidated financial
statements:
1. Vodafone uses the indirect method as per note 31.
2. Purchase of property, plant and equipment of 5,204 as per the cash flow sta
WEB-BASED PROBLEMS
Problem 1
The student answers a series of questions based on the most recent financial statements of
Vodafone, a British company. Students need to identify the functional and presentation
currencies and analyze the impact of changing th
WEB-BASED PROBLEMS
Problem 1
The student answers a series of questions based on the most recent financial statements of
Vodafone, a British company. The questions involve special purpose entities, joint ventures and
deferred income taxes.
Problem 2
The st
WEB-BASED PROBLEMS
Problem 1
The following answers are based on Vodafones March 31, 2009 consolidated financial
statements:
(a) Per note 2 under the subheading foreign currency, the British Pound sterling is both the
functional and presentation currency f
WEB - Problem 2
The following answers are based on Siemens September 30, 2009 consolidated financial
statements:
1. Siemens uses the indirect method as per the statement of cash flows.
2. Additions to intangible assets and property, plant and equipment of
WEB-BASED PROBLEMS
Problem 1
The following answers are based on Vodafones March 31, 2009 consolidated financial
statements:
1. The financial statements are presented using sterling (British Pounds).
2. Per note 2 (Foreign currencies), Vodafone recognized
Under historical cost accounting, the entry to record the transfer of the plant to SPE should be
as follows:
Notes receivable from SPE 600,000
Unrealized gain 500,000
Manufacturing plant 100,000
The unrealized gain is a contra account to the notes receiva
Web Problems
Problem 1
The following answers are based on Vodafones March 31, 2009 consolidated financial
statements:
1. Vodafones consolidated financial statements incorporate the financial statements of all
companies controlled by Vodafone. Note 2 defin
FIXED-INCOME SECURITIES
Chapter 4
Deriving the Zero-Coupon
Yield Curve
Outline
General Principle
Spot Rates
Recovering the Term Structure
Direct Methods
Interpolation
Last Time
The current price of a bond (P0) paying cash-flows Ft
is given by:
T
Ft
P0
t
Exercise 10.4
Fixed
11%
9%
2.00%
A
B
Difference
Floating
LIBOR + 2.00%
LIBOR + 0.25%
1.75%
Total Gain = 2.00% - 1.75% = 0.25%
Assuming that they share the total gain equally, each gain 0.125%
8.875%
B
9%
A
LIBOR
CF of A = +LIBOR LIBOR -2% - 8.875%: A borr
Exercise 2.27
Maturities in semesters implies that n = 1, 2, 3, 4 are 6 months, 12 months, 18 moths and
24 months, respectively. Assume that compounding is annual.
P0,1 968.52
1000
(1 R (0,0.5) 0.5
P0, 2 929.02
1000
(1 R (0,1)
P0,3 915.15
1000
(1 R (0,