Fin3001 Workshop 2 QuestionsMatlab

Java Python Workshop 2 Questions

Problem 4.4

Suppose that the risk-free zero interest rates with continuous compounding areas follows:

Calculate forward interest rates for the second, third, fourth, fifth and sixth quarters.

Problem 4.5

Assuming the SOFR rates areas in problem 4.4. What is the value of an FRA where the holder will pay SOFR and receive 4.5% (quarterly compounded) for three months period starting in one year on a principal of $1,000,000?

Problem 4.8.

What rate of interest with continuous compounding is equivalent to 8% per annum with monthly compounding?

Problem 4.10.

Suppose that 6-month, 12-month, 18-month, 24-month, and 30-month spot rates are 4%, 4.2%, 4.4%, 4.6%, and 4.8% per annum with continuous compounding respectively. Estimate the price of a bond with a face value of 100 that will mature in 30 months and pays a coupon of 4% per annum semiannually.

Problem 4.13.

Suppose that zero interest rates with continuous compounding areas follows:

Calculate forward interest rates for the second, third, fourth, and fifth years.

Fin3001 Workshop 2 QuestionsMatlab

Problem 4.24

An interest rate is quoted as 5% per annum with semiannual compounding. What is the

equivalent rate with (a) annual compounding, (b) monthly compounding, and (c) continuous compounding?

Additional Problem 1.

The 6-month, 12-month. 18-month, and 24-month zero rates are 4%, 4.5%, 4.75%, and 5% with semiannual compounding.

a)   What are the 18- and 24-months rates with continuous compounding?

b)   What is the forward rate for the six-month period beginning in 18 months?

+ With continuous compounding

+ With semiannual compounding

Additional Problem 2.

The following table gives the prices of bonds

*Half the stated coupon is paid every six months

a)   Calculate spot rates for maturities of 6 months, 12 months, 18 months, and 24 months.

b)   What are the forward rates (with continuous compounding) for the periods: 6 months to 12 months, 12 months to 18 months, 18 months to 24 months?

Problem 6.5

It is January 30. You are managing a bond portfolio worth $6 million. The duration of the portfolio in 6 months will be 8.2 years. The September Treasury bond futures price is currently 108-15, and the cheapest to deliver bond will have a duration of 7.6 years in September