Q1. Use Treasury yield curve in Exhibit 1 for this question. What is the current price of the 7.29% coupon Treasury bond that pays its coupon semi-annually, par value $100, and has two years to maturity? If there is not an exactly corresponding interest rate, you should use extrapolation method. Also, calculate yield-to-maturity (YTM) of the bond.

Q2. Assume the LIBOR rate is the same as the Treasury yield curve in Exhibit 1. What is the current price of the LIBOR floating rate bond that pays its coupon according to 6 month LIBOR rate, par value $100, and has two years to maturity? If there is not an exactly corresponding interest rate, you should use extrapolation method. Also, calculate yield-to-maturity (YTM) of the bond.

Q3. Assume the LIBOR rate is the same as the Treasury yield curve in Exhibit 1. What is the current price of the inverse floater in this case? (7.29% - LIBOR) Assume the bond that pays its coupon according to 6 month LIBOR rate, par value $100, and has two years to maturity. If there is not an exactly corresponding interest rate, you should use extrapolation method.

Q4. Re-calculate the prices of 7.29% fixed bond, LIBOR floater, and the inverse floater using Swap Rates in Exhibit 2. For 6 month rate, use Eurodollar Rates in Exhibit 3. How much do they differ with your answer in Q1, Q2, and Q3?

Q5. What is the Macaulay duration of 7.29% coupon rate bond in Q1? What is the Macaulay duration of 6 month LIBOR bond in Q2? What is the Macaulay duration of the inverse floater in Q3? Use Treasury Rates for this question. (Hint: When calculating the duration of inverse floater use the fact that floater and inverse floater combined equals to 7.29% fixed rate bond.)

Q6. Bower is planning to buy (long) the inverse floater in Q3 and sell (short) the floater in Q2. If Bower trades $1 million worth of the inverse floater and $1 million worth of the floater, what is the duration of the overall position?See Ticonderoga Inverse Floating Rate Bond.pdfTiconderoga Inverse Floating Rate Bond, Spreadsheet Supplement.xls