Assume you purchased five BBB bonds at a market value of $20 million per bond. Each...

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Assume you purchased five BBB bonds at a market value of $20 million per bond. Each bond has 5% annual coupons and 5-year maturities. Individual bond prices are 92, 92.5, 92, 91 and 91.5. Assume IRS are offered at 5.0% fixed when 1-year SOFR is 4.5% and that 5-year treasuries are also 5.00%. Assume the recovery rate is 50%. Assume you pay fixed and receive floating on an IRS and buy credit protection with a CDS. 1. What is the FV of each bond? 2. What is the YTM of each bond? 3. What is the annual cash flow of each bond? 4. What is the YTM on the portfolio? 5. What is the annual cash flow on the portfolio? 6. What is effective yield on the portfolio in year 1 if you entered into a short fixed for floating swap where you pay fixed and receive floating? 7. What is the amount you would be willing to pay in CDS spread or fee per year to hedge the default risk of each bond in your portfolio? 8. What is the aggregate cost of hedging the entire portfolio in basis points? 9. What is the implied default rate for each bond based on each bond's credit spread and recovery rate? 10. What is the average default rate for the portfolio? 11. What is the effective yield on the portfolio after executing the IRS and paying for each CDS contract? 12. What counterparty exposure do you have on the IRS contract? 13. What credit exposure do you have on the CDS contract? 14. Under what circumstances will the IRS contract increase or decrease in value and result in a mark to market gain or loss? 15. Under what circumstances will the CDS contract increase or decrease in value and result in a mark to market gain or loss? Assume you purchased five BBB bonds at a market value of $20 million per bond. Each bond has 5% annual coupons and 5-year maturities. Individual bond prices are 92, 92.5, 92, 91 and 91.5. Assume IRS are offered at 5.0% fixed when 1-year SOFR is 4.5% and that 5-year treasuries are also 5.00%. Assume the recovery rate is 50%. Assume you pay fixed and receive floating on an IRS and buy credit protection with a CDS. 1. What is the FV of each bond? 2. What is the YTM of each bond? 3. What is the annual cash flow of each bond? 4. What is the YTM on the portfolio? 5. What is the annual cash flow on the portfolio? 6. What is effective yield on the portfolio in year 1 if you entered into a short fixed for floating swap where you pay fixed and receive floating? 7. What is the amount you would be willing to pay in CDS spread or fee per year to hedge the default risk of each bond in your portfolio? 8. What is the aggregate cost of hedging the entire portfolio in basis points? 9. What is the implied default rate for each bond based on each bond's credit spread and recovery rate? 10. What is the average default rate for the portfolio? 11. What is the effective yield on the portfolio after executing the IRS and paying for each CDS contract? 12. What counterparty exposure do you have on the IRS contract? 13. What credit exposure do you have on the CDS contract? 14. Under what circumstances will the IRS contract increase or decrease in value and result in a mark to market gain or loss? 15. Under what circumstances will the CDS contract increase or decrease in value and result in a mark to market gain or loss?