Solution_HW1_FINE 4120
1. Calculate for each of the following bonds the price per $1,000 of par value assuming
semiannual coupon payments.
Bond
A
B
C
D
Coupon Rate (%) Years to Maturity Required Yield (%)
8
9
7
9
20
9
6
15
10
0
14
8
Answer: Consider a 9-y

Solution_HW2_FINE 4120
1. Suppose that an investor with a five-year investment horizon is considering purchasing a
seven-year 9% coupon bond selling at par. The investor expects that he can reinvest the coupon
payments at an annual interest rate of 9.4% a

Solutions to Assignment Problem Set 2
FINE 4120
Chapter 4
1. PVBP = -12.45 *1200 * -0.01% = $ 1.49
2. Macaulay duration (ZCB) = 10 years (the maturity)
Macaulay duration (FCB) = 3.658 years. See steps below.
Find Macaulay Duration of FCB:
First, I will fi

FINE 4120
Fixed Income
Securities
Treasury Securities (Chapter
6)
Professor: Jaideep Shenoy
FINE 412 Fixed Income Securities, Jaideep
Shenoy
1
Learning objectives
Issuance of U.S. Treasury securities
Treasury inflation protection securities (TIPS)
Zero co

Key Points
1. Spot vs. Futures markets
a. Spot markets when we want to buy asset for delivery today paying cash. But, I may
instead want to buy asset in future.
b. Futures markets when we agree to buy the asset at a future point in time (contract
maturity

Example 1: As an analyst for Fidelity, you are forecasting the market P/E ratio using
the DDM. Because the economy has been expanding for 9 years, you expect the
Dividend-payout ratio will be at its low of 40% and that long-term government bond
rates will

Example 1: As an analyst for Fidelity, you are forecasting the market P/E ratio using
the DDM. Because the economy has been expanding for 9 years, you expect the
Dividend-payout ratio will be at its low of 40% and that long-term government bond
rates will

Asset-liability management
When banks take on excessive risk tax payers are on the hook. Several regulators
supervise the safety of the banking system. The Office of the Comptroller of
Currency (OCC) oversees systemic risks of nationally chartered banks.

FINE 4120
Fixed Income
Securities
Interest Rate Swaps
(Chapter 29)
Professor: Jaideep Shenoy
FINE 412 Fixed Income Securities, Jaideep
Shenoy
1
Learning Objectives
To
understand:
What an interest rate swap is
Value of swaps with interest rate changes

FINE 4120
Fixed Income
Securities
Term Structure of Interest
Rates
Professor: Jaideep Shenoy
FINE 412 Fixed Income Securities, Jaideep
Shenoy
1
Learning Objectives
What is a yield curve?
How theoretical spot rates are derived from
the
Treasury yield curv

FINE 4120
Analysis of Fixed Income Securities
Lecture 2. Pricing of Bonds
Bond Mathematics I
Katie Moon
Fall 2015
1 / 28
FINE 4120
Analysis of Fixed Income Securities
Time Value of Money - Future Value
The future value (Pn ) of any investment today (P0 )

FINE 4120
Analysis of Fixed Income Securities
Lecture 1. Introduction to Fixed Income Securities
Katie Moon
Fall 2015
1 / 30
FINE 4120
Analysis of Fixed Income Securities
What is this course about?
Fixed Income Securities
are assets that contractually spe

Swap rate
1. It is the fixed rate in the interest rate swap quoted by the dealer after the
floating rate benchmark is set. For example, given that the floating rate is
based on the six-month LIBOR rate what is the fixed rate exchanged in the
swap?
2. The

Treasury Auction Structure
Source: http:/www.newyorkfed.org/research/current_issues/ci11-2.html
An auction market participant can submit either (a) one or more competitive bids, each specifying a
minimum yield at which the participant is prepared to buy a

Sources of bond return
1. Coupons paid by the bond.
2. Interest income from reinvestment of coupons: The bondholder buys the
bond with a certain investment horizon. Bondholder will not keep the
coupons received idle. Rather he will reinvest the coupon pro

Chapter 2
1. Barrett Co.
PV=-1079.31, FV=1000, N=40, PMT=50, I/Y=?
Show that I/Y=4.564998 (semi-annual yield)
McIntire Co.
FV=1000, N=40, PMT=45, I/Y=4.564998 (from Barett), PV=?
Show that PV=-988.14
2. (a) Bond A has no limit on price appreciation, where

CHAPTER 1 INTRODUCTION
Sectors of the US Bond Market
1. Treasury sector: securities issued by the US government
2. Agency sector: securities issued by federally related institutions and government-sponsored enterprises
3. Municipal sector: securities issu

Chapter 5
Factors Affecting Bond Yields and the Term
Structure of Interest Rates
Base Interest Rates
The securities issued by the U.S. Department of the
Treasury are backed by the full faith and credit of the
U.S. government.
Interest rates on Treasury

Chapter 4
Bond Price Volatility
Review of the Price-Yield Relationship for Option-Free Bonds
As illustrated in Exhibit 4-1 (See Overhead 4-5):
An increase in the required yield decreases the present value of
its expected cash flows and therefore decreas

Chapter 6
Treasury and
Federal Agency Securities
Treasury Securities
Two factors account for the prominent role of U.S. Treasury securities:
i. volume (in terms of dollars outstanding)
ii. liquidity
The Department of the Treasury is the largest single iss

Solution_HW3_FINE 4120
1. Answer the below questions for bonds A and B.
Bond A Bond B
8%
9%
8%
8%
2
5
$100.00 $100.00
$100.00 $104.055
Coupon
Yield to maturity
Maturity (years)
Par
Price
(a) Calculate the actual price of the bonds for a 100-basis-point in

Chapter 2
Pricing of Bonds
Review of Time Value
Future Value
The future value (Pn) of any sum of money invested today is:
Pn = P0(1+r)n
n = number of periods
Pn = future value n periods from now (in dollars)
P0 = original principal (in dollars)
r = inter

Chapter 3
Measuring Yield
Computing the Yield or Internal Rate of Return
on any Investment
The yield on any investment is the interest rate that will make
the present value of the cash flows from the investment equal
to the price (or cost) of the investm

Chapter 1
Introduction
Sectors of the U.S. Bond Market
(continued)
1. Treasury sector securities issued by the U.S.
government
2. Agency sector securities issued by federally related
institutions and government-sponsored enterprises
3. Municipal sector se

FREEMAN SCHOOL OF BUSINESS
FINE 4120-03
Analysis of Fixed Income Securities
Fall 2015
Instructor: Katie Moon
Office Phone: 504-314-7560
Office: GW1 - Room 400C
E-mail: smoon1@tulane.edu
Office Hours: Tuesday/Thursday 2:00pm3:00pm, or by appointment
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