Consider a five-year (n = 10) super-floater where the semi-annual coupon rate equals (y is the...
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Consider a five-year (n = 10) "super-floater" where the semi-annual coupon rate equals (y₁ is the semi-annual spot rate): c = 2% + 4 x y₁. Assume M = 100. Construct a portfolio of plain-vanilla floaters (c = y₁), fix-rate coupon bonds (c = c), and zero-coupon bonds (c = 0), that replicates the cash flows of the super-floater. Assume a flat spot curve at y = 2% (semi-annual rate). Calculate the price of the super-floater and its modified duration. For problems use the following risk adjusted interest-rate tree: 2% 2.5%, y = 1.5% 3%, yud = 2%, ydd = 1% Yı y₁ uu 31 - = = Consider a five-year (n = 10) "super-floater" where the semi-annual coupon rate equals (y₁ is the semi-annual spot rate): c = 2% + 4 x y₁. Assume M = 100. Construct a portfolio of plain-vanilla floaters (c = y₁), fix-rate coupon bonds (c = c), and zero-coupon bonds (c = 0), that replicates the cash flows of the super-floater. Assume a flat spot curve at y = 2% (semi-annual rate). Calculate the price of the super-floater and its modified duration. For problems use the following risk adjusted interest-rate tree: 2% 2.5%, y = 1.5% 3%, yud = 2%, ydd = 1% Yı y₁ uu 31 - = =
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1 Given the spot rate y1 is 2 the semiannual coupon rate of the superfloater is c 2 4 y1 ... View the full answer
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