Question
!!!provide the answers rounded to the nearest ten-thousandth (all explanations are needed) 1.Using the semi-annually compounded yield curve in the Appendix, answer the following questions:
!!!provide the answers rounded to the nearest ten-thousandth
(all explanations are needed)
1.Using the semi-annually compounded yield curve in the Appendix, answer the following questions:
1)You plan to price the following security: (Assume that the face value is 100.)
3.5-year floating rate bond with 20 basis point spread with annual payments (Assume that the yield curve has not changed for the last 6 months.)
First, draw a timeline and note the future cash flows from the FRB above in terms of c(t) and FV where c(t) and FV are the coupon payment at time t and the face value, respectively.
Second, calculate the first coupon payment from the timeline above. Note that the coupon payments above will be made annually and the interest rates in the yield curve are semi- annually compounded rates.
Last, compute the price of the FRB.
Appendix: (semi-annually compounded) Yield Curve Yield Maturity (years) 0.25 1.78% 0.5 0.75 1 2.10% 2.25% 2.38% 1.25 1.5 1.75 2 2.25 2.5 2.75 3 2.55% 2.71% 2.83% 2.99% 3.09% 3.15% 3.25% 3.30% 3.33% 3.35% 3.38% 3.40% 3.42% ( ) 3.44% ( ) 3.25 3.5 3.75 4 4.25 4.5 4.75 5 Appendix: (semi-annually compounded) Yield Curve Yield Maturity (years) 0.25 1.78% 0.5 0.75 1 2.10% 2.25% 2.38% 1.25 1.5 1.75 2 2.25 2.5 2.75 3 2.55% 2.71% 2.83% 2.99% 3.09% 3.15% 3.25% 3.30% 3.33% 3.35% 3.38% 3.40% 3.42% ( ) 3.44% ( ) 3.25 3.5 3.75 4 4.25 4.5 4.75 5
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