Problem 4 (5 points) Assume you have the following four securities that you can use for hedging The key rates 01 for these securities are given in the table below Assume key rates 01 are spot rates for the corresponding time periods (2, 5, 10, and 30 years) Note that such assumption is different from the assumption in lectures where key rates were YTM on par bonds 30 year key 0 Security A1 A2 A3 A4 2 year key 20 0 0 5 year key 0 50 0 0 10 year key 0 10 5 10 0 0 20 0 a) (1 point) If you want to hedge a 2 year coupon paying bond, which of the above securities (A1, A2, A3, A4) you should use No justification is needed just list all required securities b) (1 point) If you want to hedge a 5 year coupon paying bond, which of the above securities (A1, A2, A3, A4) you should use No justification is needed just list all required securities c) (3 points) How should you hedge your portfolio that has the 5 year key rate of 100 Specify the exact number of each security (A1, A2, A3, A4) in your hedging portfolio Problem 4 (5 points) Assume you have the following four securities that you can use for hedging The key rates 01 for these securities are given in the table below Assume key rates 01 are spot rates for the corresponding time periods (2, 5, 10, and 30 years) Note that such assumption is different from the assumption in lectures where key rates were YTM on par bonds 30 year key 0 Security A1 A2 A3 A4 2 year key 20 0 0 5 year key 0 50 0 0 10 year key 0 10 5 10 0 0 20 0 a) (1 point) If you want to hedge a 2 year coupon paying bond, which of the above securities (A1, A2, A3, A4) you should use No justification is needed just list all required securities b) (1 point) If you want to hedge a 5 year coupon paying bond, which of the above securities (A1, A2, A3, A4) you should use No justification is needed just list all required securities c) (3 points) How should you hedge your portfolio that has the 5 year key rate of 100 Specify the exact number of each security (A1, A2, A3, A4) in your hedging portfolio

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Problem 4 (5 points)  Assume you have the following four securities that you can use for hedging  The key rates 01 for these securities are given in the table below  Assume key rates 01 are spot rates for the corresponding time periods (2, 5, 10, and 30 years)  Note that such assumption is different from the assumption in lectures where key rates were YTM on par bonds  30 year key 0 Security A1 A2 A3 A4 2 year key 20 0 0 5 year key 0 50 0 0 10 year key 0 10 5 10 0 0 20 0 a) (1 point) If you want to hedge a 2 year coupon paying bond, which of the above securities (A1, A2, A3, A4) you should use  No justification is needed just list all required securities  b) (1 point) If you want to hedge a 5 year coupon paying bond, which of the above securities (A1, A2, A3, A4) you should use  No justification is needed   just list all required securities  c) (3 points) How should you hedge your portfolio that has the 5 year key rate of 100  Specify the exact number of each security (A1, A2, A3, A4) in your hedging portfolio Problem 4 (5 points)  Assume you have the following four securities that you can use for hedging  The key rates 01 for these securities are given in the table below  Assume key rates 01 are spot rates for the corresponding time periods (2, 5, 10, and 30 years)  Note that such assumption is different from the assumption in lectures where key rates were YTM on par bonds  30 year key 0 Security A1 A2 A3 A4 2 year key 20 0 0 5 year key 0 50 0 0 10 year key 0 10 5 10 0 0 20 0 a) (1 point) If you want to hedge a 2 year coupon paying bond, which of the above securities (A1, A2, A3, A4) you should use  No justification is needed just list all required securities  b) (1 point) If you want to hedge a 5 year coupon paying bond, which of the above securities (A1, A2, A3, A4) you should use  No justification is needed   just list all required securities  c) (3 points) How should you hedge your portfolio that has the 5 year key rate of 100  Specify the exact number of each security (A1, A2, A3, A4) in your hedging portfolio

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Problem 4 (5 points): Assume you have the following four securities that you can use for hedging. The key rates 01 for these securities are

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