Note: Use Excel to answer this question and show your work. However, vou should include the

answers in the report vou will submit.

Part 1) You observe the following Treasury bills and bond prices available in Saudi Arabia

Bond/Bill principal

100

100

100

100

100

Time to maturity

0.25

0.50

0.75

Annual coupon

0

1.25

0

6.2 (Ouarterly payments)

6.4 (Quarterly Payments)

Bond price

99.15

98.25

97.2

102

102.5

a)

Calculate zero rates for maturities of 3 months, 6 months, 9 months, 12 months and 15 months.

b) Calculate the par yield for the following bonds:

I. A 12-month bond that pays coupons semiannually.

II. A 12-month bond that pays coupons quarterly.

Part 3) STC arranged a syndicated loan 1 years ago. To hedge its interest rate risk, it entered into an interest

rate swap with SABB, where it has agreed to pay 3.5% per annum and receive the three-month SAIBOR in

return on a notional principal of SAR 100 million with payments being exchanged every three months.

The swap has a remaining life of 15 months. You observe the following SAIBOR rates for different

maturities:

Maturity

0.25

0.5

0.75

1.25

SAIBOR Rates

3.25%

3.4%

3.55%

3.7%

3.8%

The three-month SAIBOR rate three months ago, when the last swap payment was made, was 2.8% per

annum. OIS rates are the zero rates you obtained in question 1. All SAIBOR rates are compounded

quarterly. What is the value of the swap?

NOTE : USE EXCEL ONLY