compute your actual profit/loss from the long swap position. This requires collecting realized spot rates over the life of the swap.

1-the Treasury yields for all available maturities up to seven years on the day June 5 in the year 2012 are 6months: 0.14, 1year: 0.18, 2years: 0.25, 3years: 0.34, 5years: 0.68, 7years: 1.04. Treasuries with maturity 1 year or less, are zero yields; for the coupon paying Treasuries (ie, those with maturities longer than 1 year) these are the par yields. Report these yields in your write-up.

2. Use linear interpolation to compute a hypothetical par yield curve for maturities 0.5, 1, 1.5, 2, 2.5, 3, 3.5, 4, 4.5, 5, 5.5, 6, 6.5, and 7 years. You should already have the yields for maturities 0.5, 1, 2, 3, 5, and 7 years from the website. You will have to use linear interpolation to compute the yields for the remaining eight maturities.

3. Use the bootstrapping technique to compute zero rates. You already have zero rates for maturities 0.5 and 1 year; there remain twelve zero rates to compute.

4. Use the zero rates to compute the price and yield to maturity of a 7 year 2.6% Treasury note with par value $100,000.

5. Compute all fourteen 6-month forward rates F0,0.5, f0.5,1, f1,1.5, . . . , F6.5,7. Note that the first forward rate F0,0.5 is simply equal to the initial 6-month spot rate, but you will need to calculate the remaining thirteen forward rates.

6. Suppose that on the day your data was collected, you entered into a 7-year swap agreement to pay a fixed rateKand receive the 6-month floating spot rate (as determined by the yield on a 6-month Treasury bill) every six months on a notional principal of $100 million. Calculate the fixed rateKthat you agreed to pay.

7. Suppose you took the long position in the swap in the previous problem. This means you agreed to payKand receive the floating spot rate. What was your actual profit or loss when the swap matured in 2019?

To answer this question, you will need to collect actual realized yields on 6-month Treasury bills. Since there are 14 exchanges you will need 14 realized 6-month T-bill yields. You'll need to collect these by hand. Please report them in your answers.

For example, suppose you entered the swap on Jan 1 2012. The first exchange occurs July 1 2012. How much is exchanged? You pay interest at rateK, and you receive interest at rate R0,0.5, the 6-month T-bill yield that is realized at time 0 (Jan 1, 2012). The second exchange occurs Jan 1, 2013. Again, you pay interest at rateKand you receive interest at rate R0.5,0.5, the 6-month T-bill yield that is realized at time 0.5 = July 1, 2012. Etc. Note that these 6-month T-bill yields R0,0.5, . . . , R6.5,0.5 can be obtained from the Treasury web site.

Calculate and show the profit or loss for each of the 14 exchanges.

Finally, to compute the total profit or loss when the swap ends in 2019, you must account for the time value of money (since the exchanges occur at different points in time)