Copyright c 2007 by Michael R. Gibbons
Adventures in Debentures
Solutions to Questions
1.
See question #1 of Chapter 26 titled Floating Rate Notes.
2.
Part a. At t = 1, Bond A is worth 108.4212 .8238 = 89.3174 in the up scenario,
and it is worth 108.4212
The Wharton School
University of Pennsylvania
Prof. Stephan Dieckmann, Spring 2010
FNCE 235/725: Fixed Income Securities
Solution Key  Midterm Exam 2  April 14, 2010
Question 1: (24 points total)
TRUE or FALSE? No explanation is required. A correct answ
The Wharton School University of Pennsylvania Prof. Stephan Dieckmann, Fall 2010 FNCE 235/725: Fixed Income Securities Midterm Exam 2  November 30, 2010 Solution Key
Question 1: (21 points total) TRUE or FALSE? No explanation is required. A correct answe
1. Determine whether the following statements are true or false. Provide a short explanation for
your conclusion.
Part a. For a particular security, assume $ = 550 and $ = 20. If the term structure (based on
annualized rates with continuous compounding) e
Adventures in Debentures
Copyright c 2004 by Michael R. Gibbons
Adventures in Debentures
we can solve for y to obtain
Solutions to The Grammar of Fixed Income Securities
1. Part Part Part Part Part Part a. b. c. d. e. f. $100/(1.20)3 = $57.87. $100/(2)3 =
FIXED INCOME SECURITIES
OCTOBER 19, 2010 CURRENT ISSUES  SOVEREIGN DEBT and CDS Fall 2010 FNCE 235/725 Prof. Stephan Dieckmann
1
NAME OF INITIATIVE OR GROUP
Current Issues
One of the most striking features of this credit crunch has been the
relative wid
Problem 1
The Wall Street Journal reported the following prices for 3Com options for trading on Friday,
February 7 1997. The stock itself closed at $50.75.
Strike
45
50
55
60
65
70
Calls (Prices in $)
February
March
6.625
7.5
2.8125
4.75
1.0625
2.625
.437
The Wharton School
University of Pennsylvania
Prof. Stephan Dieckmann, Spring 2010
FNCE 235/725: Fixed Income Securities
Midterm Exam 2  April 14, 2010
Exam time: 75 minutes.
Rules: closed book, you may bring two 8 x 11 pieces of paper of notes, both sid
The Wharton School University of Pennsylvania Prof. Stephan Dieckmann, Fall 2010 FNCE 235/725: Fixed Income Securities Solution Key Midterm Exam 1  October 14, 2010
Question 1: (18 points total) TRUE or FALSE? No explanation is required. A correct answer
1. This question should be straightforward. We will rely on your answers for an example in a later
session in the course. Please take the time to do these calculations. Using an electronic spreadsheet
like Excel should allow you to complete this question
1. The term structure based on government strips is flat at 10% (annualized with continuously
compounded) for all maturities. Assume throughout this problem that you can borrow or lend at
these rates. Three nongovernment (but riskless) bonds are availabl
Question 1
a. FALSE
Sharpe ratios (expected returns in excess of the short term rate divided by standard
deviations) are equal, but not necessarily expected returns
b. FALSE
Even with a zero risk premium, the slope of the yield curve depends on whether cu
performance surface: time vs. dollar value vs. interest
(diff at each node)
Notes:

when short term rate > , q < .5
interest rates can become negative (problem)
 q can go to 1 or 0 irrelevant branches if q=0
Forecast (1) vs. Vasicek (2)
(1)

(2)
consta
1. What is $100 to be received in three years worth today, assuming the interest rate on
a three year zero coupon bond is:
Part a. 20% compounded annually?
Part b. 100% compounded annually?
Part c. 0% compounded annually?
Part d. 20% compounded semiannua
Adventures in Debentures
Adventures in Debentures
Copyright c 2004 by Michael R. Gibbons
Worksheet
Part Five Fixed Rate Bonds with Embedded Options
22: Bonds with Embedded Options 1 . . . . . . . . 1042 23: Bonds with Embedded Options 2 . . . . . . . . 10
Important Announcements
Adventures in Debentures
1.) Please bring pages 80 103 to the first day of class. 2.) In an effort to accommodate more students in upper level finance courses, the Finance Department has instituted a new schedule for dropping and a
Copyright c 2006 by Michael R. Gibbons
Adventures in Debentures
Solutions to Questions
1.
We know that a synthetic constant coupon bond can be constructed from an annuity
and a zero coupon bond. In particular,
K units of a T
Synthetic constant coupon
bo
Copyright c 2006 by Michael R. Gibbons
Adventures in Debentures
Solutions to Questions
1.
See question #2 of Chapter 25 titled Bonds with Embedded Options 2.
2.
Part a. Figure 9.
Part b. Figure 6.
Part c. Figure 8.
Part d. Figure 4.
Part e. Figure 7.
3.
P
Question 3
a. The floating rate note is equivalent to a combination of 0.5 units of a perfect floater with
face value of $100 and 50 units of a zerocoupon bond that matures on year 3, so its
price is $50+$72.79/2=$86.395
b. It is a floor (or, equivalentl
1. Today is time period 0. The term structure (based on annualized continuously compounded
rates) is:
Consider a forward contract that is negotiated today. The forward contract matures on time
period 2. Upon the maturity of the forward contract, a coupon
This copy is for your personal, noncommercial use only. To order presentationready copies for distribution to your colleagues, clients or customers
visit http:/www.djreprints.com.
http:/www.wsj.com/articles/investorschasereturnsinriskyzerocouponb
common FACTORS
AFFECTING BOND RETURNS
ROBERT LITTERMAN AND JOSE SCHEINKMAN
ROBERT LITTERMAN is Vice
President, Fixed Income Research, at
Goldman Sachs 6: Co. in New York.
Jos SCHEINKMAN is the Alvin
Baum Professor of Economics at the
University of Chicago
The Wharton School
University of Pennsylvania
Prof. Stephan Dieckmann, Spring 2010
FNCE 235/725: Fixed Income Securities
Solution Key  Midterm Exam 1  February 17, 2010
Question 1: (15 points total)
TRUE or FALSE? No explanation is required. A correct a
Copyright c 2007 by Michael R. Gibbons
Adventures in Debentures
Solutions to Questions
1.
This question is a minor extension of question #5 in the chapter titled Bond Valuation Using Synthetics.
Bonds A and B play no role in this solution. Clearly, a one
1. Today is year 0.
The table below provides information about the discount function as well as the value of theta:
Part a. Give a good approximate value for theta for the bond that matures in 0.7 years.
Part b. Consider a two year coupon bond with an ann
1. The following table provides some relevant information. For all of the following bonds, you
may assume that the face or par value is $100.00. All the following bonds are constant coupon
bonds where the next coupon is to be received in one year. The cou
GROUP 9
Term Project: Part I
Professor Nikolai Roussanov
We, the listed group members, certify that we have complied with the University of Pennsylvania's Code of
Academic Integrity in completing this assignment. We understand that any failure to comply w