I attached the homework below. I need the typing or written steps for questions, especially free responses.
1 Homework 6 Due March 8, 2021 (If you submit it before or on March 6, I can grade it before the exam.) Note: The first five questions are multiple-choice questions. Please choose the best answer. The other questions are open responses. 1. Which of the following has the least interest rate risk? All the bonds have an annual coupon payment. a. A 4% coupon, 10-year Treasury bond b. A 6% coupon, 10-year Treasury bond c. A floating rate bond, both coupon rate and discount rate are LIBOR+3%, and the current LIBOR is 1%. 2. The coupon formula for an inverse floater is. a. Coupon rate = K + L*(reference rate), where K and L are values specified in the prospectus for the issue b. Coupon rate = K - L*(reference rate), where K and L are values specified in the prospectus for the issue c. Coupon rate –K = L*(reference rate), where K and L are values specified in the prospectus for the issue 3. Consider a 20-year maturity floating-rate bond. Its coupon reset formula is LIBOR+2%. Its discount rate is LIBOR+2%. The discount rate of fixed cash flows is 8%. What is the Macaulay duration of this bond? Assume annual coupon payment. a. 1 b. 0.90 c. 0.97 d. 0.93 2 4. Consider a two-year maturity floating-rate bond. Its coupon reset formula is LIBOR+2%. Its discount rate is LIBOR+5%. The discount rate of fixed cash flows is 8%. What is the modified duration of this bond? Assume annual coupon payment. a. 1 b. 0.90 c. 0.97 d. 0.93 5. Consider a two-year maturity floating rate bond. Its coupon reset formula is LIBOR+2%. Its discount rate is LIBOR+5%. The discount rate of fixed cash flows is 8%. What is the convexity of this bond? a. 1.62 b. 6.00 c. 5.14 d. 5.56 6. Suppose that coupon reset formulas for a floating-rate bond is 6-month Treasury rate + 250 basis points. a. What is the reference rate? b. What is the quoted margin? c. Suppose that on a coupon reset date, the 6-month Treasury rate is 1.8%. What will the coupon rate be for the period? 3 7. Consider a five-year maturity floating rate bond with coupon rate as LIBOR+3%. Suppose annual coupon payment frequency and par value is $1,000. The current one-year interest rate is 1%. At the end of the first, second, third, fourth, and fifth year, the one- year interest rate is 2%, 2.5%, 2%, 2.75%, and 2.25%, respectively. What are the cash flows of this bond? 8. Consider a two-year maturity floating rate bond. Its coupon reset formula is 3*LIBOR+6%. Its discount rate is LIBOR+2%. The Par value of this floater is $1,000. Two-year fixed coupon bonds’ prices are $980, $990, $995, $1005, and $1020 when coupon rate is 0%, 1%, 2%, 3%, and 4%, respectively. What is the price of this floater? 9. Assume a four-year maturity float-rate bond. Par value is $1,000. Its discount rate is LIBOR+3%. The discount rate for fixed cash flows is 5%. Its coupon rate is LIBOR+1%. a. What is the price of this floater? b. What is the modified duration of this floater? c. What is the convexity of this floater? 1. Which of the following has the least interest rate risk? All the bonds have an annual coupon payment. 2. The coupon formula for an inverse floater is. 3. Consider a 20-year maturity floating-rate bond. Its coupon reset formula is LIBOR+2%. Its discount rate is LIBOR+2%. The discount rate of fixed cash flows is 8%. What is the Macaulay duration of this bond? Assume annual coupon payment. 4. Consider a two-year maturity floating-rate bond. Its coupon reset formula is LIBOR+2%. Its discount rate is LIBOR+5%. The discount rate of fixed cash flows is 8%. What is the modified duration of this bond? Assume annual coupon payment. 5. Consider a two-year maturity floating rate bond. Its coupon reset formula is LIBOR+2%. Its discount rate is LIBOR+5%. The discount rate of fixed cash flows is 8%. What is the convexity of this bond? 6. Suppose that coupon reset formulas for a floating-rate bond is 6-month Treasury rate + 250 basis points. 7. Consider a five-year maturity floating rate bond with coupon rate as LIBOR+3%. Suppose annual coupon payment frequency and par value is $1,000. The current one-year interest rate is 1%. At the end of the first, second, third, fourth, and fifth year... 8. Consider a two-year maturity floating rate bond. Its coupon reset formula is 3*LIBOR+6%. Its discount rate is LIBOR+2%. The Par value of this floater is $1,000. Two-year fixed coupon bonds’ prices are $980, $990, $995, $1005, and $1020 when coupon ... 9. Assume a four-year maturity float-rate bond. Par value is $1,000. Its discount rate is LIBOR+3%. The discount rate for fixed cash flows is 5%. Its coupon rate is LIBOR+1%.