Note: Use Excel to answer this question and show your work. However, you should include the answers in the report you will submit. Part 1) You observe the following Treasury bills and bond prices available in Saudi Arabia Bond Bill principal 100 100 100 100 Time to maturity 0.25 0.50 0.75 1 1.25 Annual coupon 0 0 0 6.2 (Quarterly payments) 6.4 (Quarterly Payments) Bond price 99.15 98.25 97.2 102 102.5 100 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 l 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 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 to answer this question and show your work. However, you should include the answers in the report you will submit. Part 1) You observe the following Treasury bills and bond prices available in Saudi Arabia Bond Bill principal 100 100 100 100 Time to maturity 0.25 0.50 0.75 1 1.25 Annual coupon 0 0 0 6.2 (Quarterly payments) 6.4 (Quarterly Payments) Bond price 99.15 98.25 97.2 102 102.5 100 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 l 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 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
