Questions

1. Assume the original maturity a bond with face value $1000 is 10 years. The annualized yield to maturity for the bond is 6.5% and its annual coupon rate is 7.5% being semiannually paid. The bond was issued on 7/1/2014, and bought on 9/1/2021. Compute the following:

(1) dirty price, (2) clean price and (3) accrued interest. (7 points)

2. Assume that the formula for the coupon rates of a floater and an inverse floater are:

Floater coupon rate: reference rate + 2.25%

Inverse floater coupon rate: 10.75% - reference rate

Suppose the $200 million of the bond is used as collateral to create a floater with par value of $100 million and an inverse floater with a par value of $100 million, answer the following questions: (3 points)

(1) What is the coupon rate of the fixed rate collateral for these two floating rate bonds?

(2) Suppose the floor for the inverse floater is 0.75%. What would be the cap of the floater?

3. Consider the following semiannual bond:

Coupon rate = 5.75%

Maturity = 20 years

Par value = $1,000

Market price = $1,050

Can be called in 8 years at $1,028.75

Can be called in 12 years at par

Only put date in 7 years and putable at par value

(1) What is the yield to maturity for this bond? (1 point)

(2) What is the yield to first call? (1 point)

(3) What is the yield to second call? (1 point)

(4) What is the yield to worst for this bond? (2 points)