Spring Finance Assingment Help With Solution

Spring Finance Assingment Help With Solution


Part I:
You have Treasury bond quotes on February 15, 2015. The dataset is at the course homepage
named the. hw1data spring15xls. There are three sets of the data: First set has 5 Treasury
securities, second part has 2 Treasuries and third set has 1 Treasuries. Note that quoted
prices are full prices.
A. For all Treasuries in the data (i.e. both first, second and third set Treasuries):
1. Find the bid and ask prices of the Treasury bill for a $100 face value. Use ask prices
for below questions.
B. For this part, use only the 5 bonds in the first set.
2. Using bootstrap method long way, extract zero coupon bonds
a) Using short way of matrix inversion extract zero coupon bonds
b) Calculate spot rates of every six months up to 3.5 years
c) Plot the spot rate curve
C. For this part, use first and second set, i.e. total of 7 Treasuries
a) Using regression methods, extract zero coupon bonds. (Note: Force the
intercept to zero in the regression).
b) Calculate 6 month spot rates
c) Plot the spot rate curve
d) Compare the spot rates with the ones you found by bootstrapping. Are
they different? Why? Why not?
Şenay Ağca, George Washington University
D. For this part, use all 8 Treasuries, i.e. first, second, and third sets.
5. Using regression methods, find zeros semiannually until year 3 and the annually until
year 4. (Note: Force the intercept to zero in the regression).
6. Using polynomial spline method of order 3
a) Fit the zero curve to find the zero for year 3.5.
b) Calculate 6 month spot rates for 4 years and plot the spot rate curve
7. Using exponential spline method of order 3
a) Fit the zero curve to find the zero for year 3.5. Take initial values of ,
1, 2, 3, and  as 0.01 while using the Solver.
b) Calculate 6 month spot rate for 4 years and plot the spot rate curve
c) Using the zeros, find 6 month forward rates after 6 months, 1 year, 1.5
years, .. up to 3 years.
8. Using Nelson-Siegel method
a) Fit the spot curve to find the spot rate for year 3.5. Take initial values of
, 1, 2, and  as 1 while using the Solver.
b) What are the 6 month spot rates for 4 years? What are the 6 months
zeros? Plot the spot rate curve.
a) Using the zero coupons you have extracted by polynomial method, find
the price of a coupon bond X that pays 1% coupon semiannually and
that has time to maturity of 4 years. Take the face value of the bond as
b) Using the zeros you have extracted and fit in using expoenential spline
method, find the Fisher-Weil duration.
– If the yield curve shifts up by 1 percent, what is the new price of
Bond X? using only duration measure?
(Hint: Use spot rate of 4 year as the yield.)


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Part II:
Suppose on 12/31/2014, you are expecting that the yield curve will steepen. You want to enter
into a spread trade using $100 million face value of 2-year bond and a corresponding amount of
20-year bond. The quotes related to these bonds on 12/31/2014 are below. Note that quoted bid
and ask prices are full prices. Take one year as 360 days. Also note that you ARE NOT a bond
dealer, so buy at the ask and sell at the bid.
Quote Date Maturity date Coupon rate Bid Ask Pvbp
12/31/2014 12/31/2016 3.00% 99.87 99.92 0.0122
12/31/2014 12/31/2034 4.50% 113.62 113.71 0.134
10. How much will you buy or sell of 2-year bond on 12/31/2014 for the spread trade? Will you
buy or sell $20 million face value of 20-year bond? Why did you buy/sell of each bond? (Use
mid dirty prices to find the amounts)
To finance this transaction you decided to enter into a 2-day repo transaction. The repo dealer
offers 1.00% on reverse repo and 1.25% on repo transaction. Also, the repo dealer gets 0.5%
haircut. After 2 days the quotes are as follows:
Quote Date Maturity date Coupon rate Bid Ask Pvbp
1/3/2008 12/31/2009 3.00% 99.93 99.95 0.0124
1/3/2008 12/31/2027 4.50% 113.71 113.75 0.132
a) Show the details of the repo transaction. What is the profit (loss) on repo
b) Show the details of the reverse repo transaction. What is the profit (loss)
of the reverse repo transaction?
c) What is the total profit (loss) of these two transactions?
d) What is the return on your own capital from these transactions?
e) If you haven’t used repo and reverse repo market, what would be your
return on profit? Why is it different than (d)? Where does the difference
come from?
f) Were you correct at predicting steepening of yield curve? Why? Why
not? Be specific.


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