Please solve the questions, 9 questions including T/F and written answers

1. Consider a bond P with 4 year maturity, 6% coupon annually paid, yield to maturity 7%. The correct expression for the bond pricing function? 4 a) P = 6 100 + (1+7 i ) (1+7 ) 4 i=1 6 100 + i b) P = (1+7 ) (1+ 7 )4 c) P(y) = 6 6 6 106 + + + 1 2 3 4 (1+ y ) (1+ y ) (1+ y ) (1+ y ) 4 d) P(y) = 6 100 + (1+7 i ) (1+7 ) 4 i=1 2. Consider a bond P with 15 year maturity, 6% coupon annually paid, yield to maturity 7%, The dollar convexity is a) -853.26 b) 120.44 c) -10947 d) 10947 3. In the context of Nelson and Seagal partialhedging if you want to partially hedge with respect to the risk of a shift and a twist of the yield curve you need to find two interest rate sensitive financial instruments, and set up and solve a 2 by 2 system. True/False 4. Which of the following statements reflects the correlation stylized facts presented in the lecture notes? a) Interest rates for different maturities are neither perfectly correlated nor perfectly uncorrelated. Correlation increases with maturity. b) Interest rates for different maturities are neither perfectly correlated nor perfectly uncorrelated. Correlation increases when maturities are further apart. c) Interest rates for different maturities are perfectly uncorrelated. This is why in the typical correlation table correlations are not all zeros or ones. d) Interest rates for different maturities are neither perfectly correlated nor perfectly uncorrelated. Correlation decreases when maturities are further apart. 5. What is the price of B(0,3)? Zero coupon rates R(0,1) 4.5562% R(0,2) 5.2706% R(0,3) 6.0745% 6. In the context of the Merton (1973) credit default model the debt of a conpany is shown to be akin to a a) short put. It only pays when the value of the company is greater than zero. The payment is at the most equal to the face value of debt. a) short put. it only pays when the value of the company is greater than zero. the payment is at the most equal to the face value of debt b) a government bond. there is no risk and therefore it pays in all states of nature. c) long call. it pays only when the value of the company is greater than the face value of debt. d) long put. it pays only when the company is in distress, but the distress is managed. 7. For high grade bonds it is more likely to be downgraded than it is to be upgraded. however for low grade bonds this is not necessarily the case. True/False Written 8. What in your opinion could help avoiding a Finanacial Crisis similar to the one that occurred in 2008? 9. Your boss at a fixed income management firm shows you a note. The note reads. Hedge portfolio with Nelson and Seagal. 1. Consider a bond P with 4 year maturity, 6% coupon annually paid, yield to maturity 7%. The correct expression for the bond pricing function? 4 a) P = 6 100 + (1+7 i ) (1+7 ) 4 i=1 6 100 + i b) P = (1+7 ) (1+ 7 )4 c) P(y) = 6 6 6 106 + + + 1 2 3 4 (1+ y ) (1+ y ) (1+ y ) (1+ y ) 4 d) P(y) = 6 100 + (1+7 i ) (1+7 ) 4 i=1 2. Consider a bond P with 15 year maturity, 6% coupon annually paid, yield to maturity 7%, The dollar convexity is a) -853.26 b) 120.44 c) -10947 d) 10947 3. In the context of Nelson and Seagal partialhedging if you want to partially hedge with respect to the risk of a shift and a twist of the yield curve you need to find two interest rate sensitive financial instruments, and set up and solve a 2 by 2 system. True/False 4. Which of the following statements reflects the correlation stylized facts presented in the lecture notes? a) Interest rates for different maturities are neither perfectly correlated nor perfectly uncorrelated. Correlation increases with maturity. b) Interest rates for different maturities are neither perfectly correlated nor perfectly uncorrelated. Correlation increases when maturities are further apart. c) Interest rates for different maturities are perfectly uncorrelated. This is why in the typical correlation table correlations are not all zeros or ones. d) Interest rates for different maturities are neither perfectly correlated nor perfectly uncorrelated. Correlation decreases when maturities are further apart. 5. What is the price of B(0,3)? Zero coupon rates R(0,1) 4.5562% R(0,2) 5.2706% R(0,3) 6.0745% 6. In the context of the Merton (1973) credit default model the debt of a conpany is shown to be akin to a a) short put. It only pays when the value of the company is greater than zero. The payment is at the most equal to the face value of debt. a) short put. it only pays when the value of the company is greater than zero. the payment is at the most equal to the face value of debt b) a government bond. there is no risk and therefore it pays in all states of nature. c) long call. it pays only when the value of the company is greater than the face value of debt. d) long put. it pays only when the company is in distress, but the distress is managed. 7. For high grade bonds it is more likely to be downgraded than it is to be upgraded. however for low grade bonds this is not necessarily the case. True/False Written 8. What in your opinion could help avoiding a Finanacial Crisis similar to the one that occurred in 2008? 9. Your boss at a fixed income management firm shows you a note. The note reads. Hedge portfolio with Nelson and Seagal. 1. Consider a bond P with 4 year maturity, 6% coupon annually paid, yield to maturity 7%. The correct expression for the bond pricing function? 4 a) P = 6 100 + (1+7 i ) (1+7 ) 4 i=1 6 100 + i b) P = (1+7 ) (1+ 7 )4 c) P(y) = 6 6 6 106 + + + 1 2 3 4 (1+ y ) (1+ y ) (1+ y ) (1+ y ) 4 d) P(y) = 6 100 + (1+7 i ) (1+7 ) 4 i=1 2. Consider a bond P with 15 year maturity, 6% coupon annually paid, yield to maturity 7%, The dollar convexity is a) -853.26 b) 120.44 c) -10947 d) 10947 3. In the context of Nelson and Seagal partialhedging if you want to partially hedge with respect to the risk of a shift and a twist of the yield curve you need to find two interest rate sensitive financial instruments, and set up and solve a 2 by 2 system. True/False 4. Which of the following statements reflects the correlation stylized facts presented in the lecture notes? a) Interest rates for different maturities are neither perfectly correlated nor perfectly uncorrelated. Correlation increases with maturity. b) Interest rates for different maturities are neither perfectly correlated nor perfectly uncorrelated. Correlation increases when maturities are further apart. c) Interest rates for different maturities are perfectly uncorrelated. This is why in the typical correlation table correlations are not all zeros or ones. d) Interest rates for different maturities are neither perfectly correlated nor perfectly uncorrelated. Correlation decreases when maturities are further apart. 5. What is the price of B(0,3)? Zero coupon rates R(0,1) 4.5562% R(0,2) 5.2706% R(0,3) 6.0745% 6. In the context of the Merton (1973) credit default model the debt of a conpany is shown to be akin to a a) short put. It only pays when the value of the company is greater than zero. The payment is at the most equal to the face value of debt. a) short put. it only pays when the value of the company is greater than zero. the payment is at the most equal to the face value of debt b) a government bond. there is no risk and therefore it pays in all states of nature. c) long call. it pays only when the value of the company is greater than the face value of debt. d) long put. it pays only when the company is in distress, but the distress is managed. 7. For high grade bonds it is more likely to be downgraded than it is to be upgraded. however for low grade bonds this is not necessarily the case. True/False Written 8. What in your opinion could help avoiding a Finanacial Crisis similar to the one that occurred in 2008? 9. Your boss at a fixed income management firm shows you a note. The note reads. Hedge portfolio with Nelson and Seagal