1.What is the value of 15-year corporate bonds, with an annual coupon rate of 9% and semi-annual payments, if the yield on similar bonds is 8% per year? How much would the value change if the yield increased to 10% per year? Under what conditions will this bond trade at par (face value)?

2. Compute invoice price of the following positions for settlement date Sept 10, 2016: (Do not use the excel formula ACCRINT for accrued interest).

Position	Maturity	Bid Discount	Annual Coupon Rate	Bid Price	Asked Price
Sell	2/1/2017	1.065%	-
Sell	5/15/2020		7.125%	133.9891	133.8047
Buy	11/15/2040		3.375%	127.0313	127.0938
Sell	8/15/2046		4.875%	96.2969	96.3281

3. The Fed is expected to increase the target federal funds rate. This will tend to flatten the yield curve. With this in mind, please answer the following questions. You are given the following data:

Settlement Date: 12-Sep-17

Repo Rate: 3%

Reverse Repo Rate: 3.5%

14-Sep-17		2-year	10-year
	Coupon	3%	5.50%
	Maturity	31-Aug-19	15-Aug-27
	Clean	100.0391	102.1534
	Issue date	31-Aug-19	15-Aug-27

19-Sep-17		2-year	10-year
	Clean	99.9295	103.1450

A). Compute the yields on the above bonds on 14-Sep-17 and 19-Sep-17.

B). Compute the invoice price of each bond on 14-Sep-17 and 19-Sep-17.

C). Which of these bonds will you use for the Repo transaction? Which one will you use for the Reverse Repo transaction?

D). Compute the profit/loss from ONLY the Repo transaction.

E). Using a graph explain the change in the yield curve from 14-Sep-17 and 19-Sep-17.