QuantTatve – Sample Questons1)The price of a bond rose from $975 to $995 when the yield to maturity fell from 9.75% to 9.25%. What is the modiFed dura±on?2)Consider the following balance sheet (expressed in millions of dollars): Assets Liabili±es Overnight loans: $300 Long term debt: $800 (D* = 6 years) 1-year Treasuries: $300 (D* = 0.9 years) Net worth: $100 3-year loans: $300 in (D* = 2.5 years) How would you dura±on-hedge this balance sheet with an interest rate swap with a Fxed-rate side having a modiFed dura±on of 4 years and a ²oa±ng-rate side having a modiFed dura±on of 6 months if interest rates increased by 1%? What would be the no±onal principle (NP) on the swap?a) Receive Fxed and pay ²oa±ng, NP = 600 million b) Receive ²oa±ng and pay Fxed, NP = 720 million c) Receive Fxed and pay ²oa±ng, NP = 850 million d) Receive ²oa±ng and pay Fxed, NP = 1,240 million e) Receive Fxed and pay ²oa±ng, NP = 1,080 million3)Bank XYZ has the following market-value balance sheet (expressed in millions of dollars): Assets Liabili±es Short Term Loans 1000 5-year CDs 1350 Long-Term Loans 500 Net Worth 150 The short-terms loans are zero coupon and repaid at the end of 1 year. The Long-term loans are zero coupon loans that mature in 3 years. On the liability side, the 5-year CDs are also zero coupon. Assume that the yield curve is ²at and interest rates are 5% today. Suppose you want to dura±on hedge the bank’s equity by buying a 10-year Treasury STRIP Fnanced with overnight borrowing in the interbank market. How would you hedge against a 1% increase in interest ratesusing STRIPS?a) Long 425 million b) Short 425 million c) Long 500 million d) Short 500 million e) Long 375 million
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QuantTatve – Sample Questons1)The price of a bond rose from $975 to $995 when the yield to maturity fell from 9.75% to 9.25%. What is the modiFed dura±on?2)Consider the following balance sheet (expressed in millions of dollars): Assets Liabili±es Overnight loans: $300 Long term debt: $800 (D* = 6 years) 1-year Treasuries: $300 (D* = 0.9 years) Net worth: $100 3-year loans: $300 in (D* = 2.5 years) How would you dura±on-hedge this balance sheet with an interest rate swap with a Fxed-rate side having a modiFed dura±on of 4 years and a ²oa±ng-rate side having a modiFed dura±on of 6 months if interest rates increased by 1%? What would be the no±onal principle (NP) on the swap?a) Receive Fxed and pay ²oa±ng, NP = 600 million b) Receive ²oa±ng and pay Fxed, NP = 720 million c) Receive Fxed and pay ²oa±ng, NP = 850 million d) Receive ²oa±ng and pay Fxed, NP = 1,240 million e) Receive Fxed and pay ²oa±ng, NP = 1,080 million3)Bank XYZ has the following market-value balance sheet (expressed in millions of dollars): Assets Liabili±es Short Term Loans 1000 5-year CDs 1350 Long-Term Loans 500 Net Worth 150 The short-terms loans are zero coupon and repaid at the end of 1 year. The Long-term loans are zero coupon loans that mature in 3 years. On the liability side, the 5-year CDs are also zero coupon. Assume that the yield curve is ²at and interest rates are 5% today. Suppose you want to dura±on hedge the bank’s equity by buying a 10-year Treasury STRIP Fnanced with overnight borrowing in the interbank market. How would you hedge against a 1% increase in interest ratesusing STRIPS?a) Long 425 million b) Short 425 million c) Long 500 million d) Short 500 million e) Long 375 million