1) Please clearly mention questions 1 or 2 in your solution not to be confused. 2) Please add some explanation/sentences to understand equations. 3) Please use the following equation typing function...

Fixed income (interest rate/swap) calculation. They are not difficult questions, so I set up one day for the due day. Thank you!


1) Please clearly mention questions 1 or 2 in your solution not to be confused. 2) Please add some explanation/sentences to understand equations. 3) Please use the following equation typing function of MS-WORD below (NOT other one such as Math equation 6.0), otherwise I cannot edit the equations of MS-WORD. You send me some of your equation samples to see if I edit them or not. Again, please use this MS-WORD equation function. [1] If the present value (PV) of a $1 payment (to be received in 1 year) is $0.98, what is future value (FV) of $1 invested today? a. $1.00b. $1.98 c. $1.05 d. $1.02 Solution with equations here: [2] Suppose that a 2.00%-coupon Treasury note with a 2-year maturity is trading at 101. What is a good approximation for its (semi-annual) yield-to-maturity? a. 1.50% b. 2.25% c. 2.50% d. 1.00% Solution with equations here: [3] Suppose that the same note as in [2] is priced to yield 3.00%. What is good approximation for the corresponding price? a. 102.50 b. 100.00 c. 99.00 d. 98.00 Solution with equations here: [4] Assume that a 5-year maturity 2.50% Treasury note is currently priced at par (100%). What could be an approximate value for its PV01? a. $0.025 per $100 face (= $250 per $1 million face value) b. $0.030 per $100 face (= $300 per $1 million face value) c. $0.045 per $100 face (= $450 per $1 million face value) d. $0.060 per $100 face (= $600 per $1 million face value) Solution with equations here: [5] Suppose bonds sold off and the note referenced in [4] fell to a price of 98%. Would its PVO1 increase or decrease? Solution with equations here: [6] Suppose we consider the note in [4], again priced at 100%, and another 5-year note (with a 4% coupon) priced at the same yield. Which one has the bigger PV01? Solution with equations here: [7] If you just bought in $100 million of a 2-year Treasury note, approximately how many 5-year Treasury notes would you need to sell to hedge against parallel moves in the yield curve? a. $100 million b. $50 million c. $250 million d. $40 million Solution with equations here: [8] When you enter into a 2-year “receiver swap”: a. You receive fixed, pay floating b. You receive floating, pay fixed c. You are short the market (make money when the bond market sells off) d. You could hedge your rate risk by buying 2-year Treasury note futures Solution with equations here: [9] Assume you own $100 million of a 2-year note and want to hedge your market risk via the swap market. What is the most natural hedge? a. You enter into 2-year swap as the fixed receiver b. You enter into a 2-year swap as the fixed payer c. You buy a 1 x 2 payer swaption (a 1-year option to enter into a 2-year swap where you would be the fixed payer) d. You enter into a 10-year swap as the fixed payer Solution with equations here: [10] You are the fixed payer in a 5-year swap: a. You are long the market b. If yields rise you make money c. In any scenario where the yield curve steepens you will make money d. You are neutral to parallel shifts of the yield curve Solution with equations here: [11] You are receiving fixed in a $100 million 2-year swap. Your PV01 is approximately: a. $2,000 b. $10,000 c. $20,000 d. $100,000 Solution with equations here: