Use the two yield curves at two moments in time in Table $3\mathrm{.}7,$ and

t he following portfolio:

$*$Please use excel and show formulas

$$ Long $$20$ million of a $6-$year inverse floaters with the following quarterly

coupon:

Coupon at t $=20\%$ r$4($t $0\mathrm{.}25)$

where r$4($t$)$ denotes the quarterly compounded, $3-$month rate.

$$ Long $$20$ million of $4-$year floating rate bonds with a $45$ basis point spread

paying semiannually.

$$ Short $$30$ million of a $5-$year zero coupon bond.

$7.$ You are standing on February $15,1994$:

$($a$)$ What is the total value of the portfolio?

$($b$)$ Compute the dollar duration of the portfolio.

$8.$ You are worried about interest rate volatility. You decide to hedge your portfolio

with a $3-$year coupon bond paying $4\%$ on a semiannual basis.

Table $3\mathrm{.}7$ Two Term Structures of Interest Rates