You are given the following series of bonds Six month bond with a bond price of $99 50 One year bond with a bond price of $98 87 One and a half year 2 00 coupon bond with a price of $101 15 Two year 2 25 coupon bond with a price of $101 90 Two and a half year 2 35 coupon bond with a price of $102 50 Three year 1 50 coupon bond with a price of $100 25 Three and a half year 2 00 coupon bond with a price of $101 55 Four year 2 25 coupon bond with a price of $102 20 Four and a half year 2 50 coupon bond with a price of $103 00 Five year 3 00 coupon bond with a price of $105 00 Solve for the spot and forward rates associated with the results you get from above Including the first forward rate, which should be equal to the spot rate, you should have ten forward rates altogether Graph the spot and forward yield curves Company A has four floating rate loans It has a $100,000,000 non amortizing loan for five years a $50,000,000 non amortizing loan for four years and a $50,000,000 non amortizing loan for two years all priced at LIBOR 2 00 If the Treasurer is authorized by the company to execute only one interest rate swap, how should he she structure the hedge using the information you derived from above One year has passed and Company A has to mark its swap from 1a) to market Use the following spot rates to solve for the mark to market value of the swap Is it in the money or out of the money from Company As perspective z t,t 0 5 5 10 z t,t 1 0 5 30 z t,t 1 5 5 55 z t,t 2 0 5 73 z t,t 2 5 5 85 z t,t 3 0 6 00 z t,t 3 5 6 20 z t,t 4 0 6 45 z t,t 4 5 6 75 z t,t 5 0 6 98 3 If the Treasurer wanted to execute a forward starting swap for the $100,000,000 tranche that starts one year from now and ends four years from the start date, solve for the swap fixed rate for just this forward starting structure Compare it to the swap rate you got in 1a above Explain the nature and causes of the difference 4 If the company had a $75MM fixed rate bond that matures in three years that they want to swap to a floating rate, what would be the effective floating rate if the fixed coupon is 4 50 Use the initial set of rates given at the start of this problem What is your initial rate given the current LIBOR setting (you can get this from the rates given above Do you think this is a good strategy to pursue Why or why not Make sure you relate your answer to the pricing you derived

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You are given the following series of bonds: Six month bond with a bond price of $99.50 One year bond with a bond price of

You are given the following series of bonds:

Six month bond with a bond price of $99.50

One year bond with a bond price of $98.87

One and a half year 2.00% coupon bond with a price of $101.15

Two year 2.25% coupon bond with a price of $101.90

Two and a half year 2.35% coupon bond with a price of $102.50

Three year 1.50% coupon bond with a price of $100.25

Three and a half year 2.00% coupon bond with a price of $101.55

Four year 2.25% coupon bond with a price of $102.20

Four and a half year 2.50% coupon bond with a price of $103.00

Five year 3.00% coupon bond with a price of $105.00

Solve for the spot and forward rates associated with the results you get from above. Including the first forward rate, which should be equal to the spot rate, you should have ten forward rates altogether. Graph the spot and forward yield curves.

Company A has four floating rate loans. It has a $100,000,000 non-amortizing loan for five years a $50,000,000 non-amortizing loan for four years and a $50,000,000 non-amortizing loan for two years all priced at LIBOR + 2.00%.

If the Treasurer is authorized by the company to execute only one interest rate swap, how should he/she structure the hedge using the information you derived from above?
One year has passed and Company A has to mark its swap from 1a) to market. Use the following spot rates to solve for the mark-to-market value of the swap. Is it in-the-money or out-of-the-money from Company As perspective?

z_t,t+0.5 = 5.10%

z_t,t+1.0 = 5.30%

z_t,t+1.5 = 5.55%

z_t,t+2.0 = 5.73%

z_t,t+2.5 = 5.85%

z_t,t+3.0 = 6.00%

z_t,t+3.5 = 6.20%

z_t,t+4.0 = 6.45%

z_t,t+4.5 = 6.75%

z_t,t+5.0 = 6.98%

3. If the Treasurer wanted to execute a forward starting swap for the $100,000,000 tranche that starts one year from now and ends four years from the start date, solve for the swap fixed rate for just this forward starting structure. Compare it to the swap rate you got in 1a above. Explain the nature and causes of the difference.

4. If the company had a $75MM fixed rate bond that matures in three years that they want to swap to a floating rate, what would be the effective floating rate if the fixed coupon is 4.50%. Use the initial set of rates given at the start of this problem. What is your initial rate given the current LIBOR setting (you can get this from the rates given above. Do you think this is a good strategy to pursue? Why or why not? Make sure you relate your answer to the pricing you derived.