Please do question 1C

All the necessary data is in the following link~

http://www.wsj.com/mdc/public/page/2_3020-treasury.html.

Thanks

Econ 136: Financial Economics Project #3 Due Date: October 26, 2017 General Instructions . Please submit the homework before the class starts. Late homework wil not be accepted . Please put your name, student ID & your GSI's name at the upper right corner of the front page. . Please staple the pages of your homework together Homework will be returned in Discussion Section. 1. Referring to the U.S. Treasury quotes of the Wall Street Journal. (a) Why are the coupons on the two bonds that mature on 11/15/2017 so different? (b) Assume that the prices for bonds that mature after 11/15/2017 are the same prices that you will see on 11/15/2017 and construct a table of annual spot and 6-month forward rates as of 11/15/2017 based on mid-market prices, every six months, for the next 5 years. . Mid-market prices are the average of the bid and asked price. U.S Treasuries are semi-annual-pay bonds (i.e., a half-coupon payment every 6 months) . If more than one bond matures on a given date, use the first bond that appears in the table . Don't include cashflows paid on 11/15/2017 (c) Create a client recommendation to swap their USD 100 million face value of the 2-5/s's of 11/15/20 from fixed to floating using a 3-year semi-annual-pay interest- rate swap . What is the par coupon for this swap? . Do you recommend a receiver or payer swap? Briefly explain the basis for your recommendation. . Demonstrate the hedge efficacy of your swap by graphing the P/L as a funo- tion of parallel shifts of the forward curve for (i) the client holdings of the 2-5/s's of 11/15/20, (ii) your recommended swap, and (ii) the hedged bond (i.e., the sum of the P/L of the bond and the swap). (Note: Since rates are low you will be limited in your ability to shift the forward curve douwn by the lowest value of the forward rate. For positive shifts a range with a marimum of +50 bps should be sufficient to demonstrate the efficacy of your hedge.) Econ 136: Financial Economics Project #3 Due Date: October 26, 2017 General Instructions . Please submit the homework before the class starts. Late homework wil not be accepted . Please put your name, student ID & your GSI's name at the upper right corner of the front page. . Please staple the pages of your homework together Homework will be returned in Discussion Section. 1. Referring to the U.S. Treasury quotes of the Wall Street Journal. (a) Why are the coupons on the two bonds that mature on 11/15/2017 so different? (b) Assume that the prices for bonds that mature after 11/15/2017 are the same prices that you will see on 11/15/2017 and construct a table of annual spot and 6-month forward rates as of 11/15/2017 based on mid-market prices, every six months, for the next 5 years. . Mid-market prices are the average of the bid and asked price. U.S Treasuries are semi-annual-pay bonds (i.e., a half-coupon payment every 6 months) . If more than one bond matures on a given date, use the first bond that appears in the table . Don't include cashflows paid on 11/15/2017 (c) Create a client recommendation to swap their USD 100 million face value of the 2-5/s's of 11/15/20 from fixed to floating using a 3-year semi-annual-pay interest- rate swap . What is the par coupon for this swap? . Do you recommend a receiver or payer swap? Briefly explain the basis for your recommendation. . Demonstrate the hedge efficacy of your swap by graphing the P/L as a funo- tion of parallel shifts of the forward curve for (i) the client holdings of the 2-5/s's of 11/15/20, (ii) your recommended swap, and (ii) the hedged bond (i.e., the sum of the P/L of the bond and the swap). (Note: Since rates are low you will be limited in your ability to shift the forward curve douwn by the lowest value of the forward rate. For positive shifts a range with a marimum of +50 bps should be sufficient to demonstrate the efficacy of your hedge.)