1. Consider the swap and Libor curves available in Reuters or Bloomberg.

(a) Obtain the 3-month discount and forward curves

(b) Obtain the 2-year forward curve

(c) Find the components for the following note: maturity: 3 years callable : each coupon payment date payments: annual coupons: Year 1: R1 Year 2: α1× (2-year CMS) + previous coupon Year 3: α2× (2-year CMS) + previous coupon Determine the unknowns R1, α1, α2.

(d) Find the components for the following note: maturity: 3 years callable: each coupon payment date payments: annual coupons: Year 1: R1 Year 2: α × [(3-year CMS) − (2-year CMS)] + β1 Year 3: α × [(3-year CMS) − (2-year CMS)] + β2 Determine the unknowns R1, α, βi.

(e) In the latter case, when would β1 = β2?