Question 3 (10 Marks) Issue/Invest Face Value Security Code Yield Spot Rate Pay/Rec (Currency of Issue) Proceeds CP3M Issue/Sell 173,320,000.00 5.54% 1.0000 IRSDB14 Rec 150,000,000.00 6.26% 1.0000 150,000,000.00 5.52% 1.0000 IRSDB07 Pay 600,000,000.00 5.98% 1.0000 600,000,000.00 5.52% 1.0000 DB07 Issue/Sell 22,000,000.00 5.72% 1.0000 Table 3 is the transactions your team have just done today, i.e. 15th June 2004. Assume the coupon on the fixed side of each interest rate swap is 5.75% p.a., and the next coupon date is 15th September 2004. Coupons are paid semi-annually. Required: a) Does the IRSDB07 transaction increase or decrease your portfolio duration? Why? [2 marks] b) Calculate the current net cash flow of IRSDB07. Is it a cash inflow or outflow for your team? Show all working. [4 marks] c) What is the possible main reason for completing both the IRSDB07 and IRSDB14 transactions, rather than the IRSDB07 transaction only? Clearly explain your answer without doing any calculations. [4 marks] Table 3 Question 3 (10 Marks) Issue/Invest Face Value Security Code Yield Spot Rate Pay/Rec (Currency of Issue) Proceeds CP3M Issue/Sell 173,320,000.00 5.54% 1.0000 IRSDB14 Rec 150,000,000.00 6.26% 1.0000 150,000,000.00 5.52% 1.0000 IRSDB07 Pay 600,000,000.00 5.98% 1.0000 600,000,000.00 5.52% 1.0000 DB07 Issue/Sell 22,000,000.00 5.72% 1.0000 Table 3 is the transactions your team have just done today, i.e. 15th June 2004. Assume the coupon on the fixed side of each interest rate swap is 5.75% p.a., and the next coupon date is 15th September 2004. Coupons are paid semi-annually. Required: a) Does the IRSDB07 transaction increase or decrease your portfolio duration? Why? [2 marks] b) Calculate the current net cash flow of IRSDB07. Is it a cash inflow or outflow for your team? Show all working. [4 marks] c) What is the possible main reason for completing both the IRSDB07 and IRSDB14 transactions, rather than the IRSDB07 transaction only? Clearly explain your answer without doing any calculations. [4 marks] Table 3