FV 1000

CR 10%
Maturity 3
YTM 12%

Coupon 100

Period Cash Flow PV Weight Period*weight

1 100 89.28571 9.38% 0.09
2 100 79.71939 8.37% 0.17
3 100 71.17802 7.48% 0.22
3 1000 711.7802 74.77% 2.24
951.9634 100.00% 2.73

Macaulay Duration 2.7287

Modified Duration 2.4363

FV 1000
CR 10%
Maturity 5
YTM 12%

Coupon 100
Period Cash Flow PV Weight
1 100 89.2857142857143 9.62%
2 100 79.719387755102 8.59%
3 100 71.1780247813411 7.67%
4 100 63.5518078404831 6.85%
5 100 56.7426855718599 6.12%
5 1000 567.426855718599 61.15%
927.9044759531 100.00%

Macaulay Duration 4.1355

Modified Duration 3.6924

FV 1000
CR 8%
Maturity 5
YTM 12%

Coupon 80
Period Cash Flow PV Weight
 1 80 74.074 7.41%
2 80 68.587 6.86%
3 80 63.507 6.35%
4 80 58.802 5.88%
5 80 54.447 5.44%
5 1000 680.583 68.06%
1000.000 100.00%

Macaulay Duration 4.3121

Modified Duration 3.8501

FV 1000 Period Cash Flow PV

Coupon rate 4% 1 40 38.09524
Maturity 4 2 40 36.28118
YTM 5% 3 40 34.55350
4 1040 855.61057
Coupon 40 964.54049

Macaulay Duration 3.7705

Modified Duration 3.5909

0.000940
Convexity 16.7581646351477

If int rate increase by 1%

If int rate decrease by 1%

Including convexity

DV01 = P*D/10000 DVO1

FV 1000 Period Cash Flow PV

Coupon rate 12% 1 120 111.11111
Maturity 30 2 120 102.88066
YTM 8% 3 120 95.25987
4 120 88.20358
Coupon 120 5 120 81.66998
6 120 75.62036
7 120 70.01885
8 120 64.83227
9 120 60.02988
10 120 55.58322
11 120 51.46594
12 120 47.65365
13 120 44.12375
14 120 40.85532
15 120 37.82900
16 120 35.02686
17 120 32.43227
18 120 30.02988
19 120 27.80545
20 120 25.74578
21 120 23.83869
22 120 22.07286
23 120 20.43783
24 120 18.92392
25 120 17.52215
26 120 16.22421
27 120 15.02242
28 120 13.90965
29 120 12.87930
30 1120 111.30261
1450.31133

Macaulay Duration

Modified Duration

Convexity
DV01 = P*D/10000

DV01=
DV01=
Period*weight
0.10
0.17
0.23
0.27
0.31
3.06
4.13546178663775

Period*weight
 0.07
0.14
0.19
0.24
0.27
3.40
4.31

Weight Period*weight
3.95% 0.04 2 76.19048
3.76% 0.08 6 217.6871
3.58% 0.11 12 414.642
88.71% 3.55 20 17112.21
100.00% 3.77 17820.73 17820.73

-0.0359091
-34.6358133650466

0.0359091334641592
34.6358133650466

If int rate increase by 1% If int rate decrease by 1%

-0.0350712252324019 0.0367470416959166
-33.8276169444576 35.4440097856355

0.346358133650466 RS

Weight Period*weight
7.66% 0.08 2 222.2222
7.09% 0.14 6 617.284
6.57% 0.20 12 1143.118
6.08% 0.24 20 1764.072
 5.63% 0.28 30 2450.1
5.21% 0.31 42 3176.055
4.83% 0.34 56 3921.055
4.47% 0.36 72 4667.923
4.14% 0.37 90 5402.689
3.83% 0.38 110 6114.154
3.55% 0.39 132 6793.504
3.29% 0.39 156 7433.97
3.04% 0.40 182 8030.523
2.82% 0.39 210 8579.618
2.61% 0.39 240 9078.961
2.42% 0.39 272 9527.305
2.24% 0.38 306 9924.276
2.07% 0.37 342 10270.22
1.92% 0.36 380 10566.07
1.78% 0.36 420 10813.23
1.64% 0.35 462 11013.47
1.52% 0.33 506 11168.87
1.41% 0.32 552 11281.68
1.30% 0.31 600 11354.35
1.21% 0.30 650 11389.4
1.12% 0.29 702 11389.4
1.04% 0.28 756 11356.95
0.96% 0.27 812 11294.63
0.89% 0.26 870 11204.99
7.67% 2.30 930 103511.4
100.00% 11.55 325461.5 325461.5

11.5471

10.6918

0.000591
192.393724843603

If int rate increase by 1% -0.1069180

-155.064342848329

If int rate decrease by 1% 0.106917969433534

155.064342848329

If int rate increase by 1% If int rate decrease by 1%

Including convexity -0.0972982831913543 0.116538
-141.112802864415 169.0159
DV01 1.55064342848329 RS

DUR * (Delta i /1+i)*P

(DeltaBV/10000*DeltaY)
decrease by 1%
FV 1000
CR 10%
Maturity 3
YTM 12%

Coupon 100

Years CF PV of CF Wgt avg of CF T^2+T

1 100 89.285714286 89.285714286 0.093791 0.093791 2
2 100 79.719387755 159.43877551 0.083742 0.167484 6
3 100 71.178024781 213.53407434 0.07477 0.224309 12
3 1000 711.78024781 2135.3407434 0.747697 2.243091 12
951.96337464 2597.5993076 1 2.728676

Mac Dur 2.7286756789

Modified Dur 2.4363175705

Convexity 0.0013176978
Convexity 13.2460078

DV01 -23.19285096 23.192850961

1% -0.23193 0.23193 0.231929
178.5714
478.3163
854.1363
8541.363
10052.39
9.333333 1.06
0.160493

2.728676 6.604658
Co A & Co B have been offered following rates PA on a $20 million loan on 5 years

Co Fixed Floating
A 12% Libor+0.1%
B 13.40% Libor+0.6%

Design a swap that will a bank acting as an intermediary and earn 0.1% p.a. should be equally attractive for both the companie

A B
Fixed 12% 13.40% 1.40%
Floating Libor+0.1% Libor+0.6% 0.5

Swap gain 0.9

Bank gain 0.1
Net gain 0.8 0.4 0.4
active for both the companies. Co A requires floating rate and Co B requires fixed rate.
Co A & Co B have been offered following rates PA on a $20 million loan on 5 years

Co Fixed Floating 0.006

A 12% Libor+0.1%
B 13.40% Libor+0.6%

Design a swap that will a bank acting as an intermediary and earn 0.1% p.a. should be equally attractive for both the companie

Fixed rate spread 1.40%

Flot 0.005
Swap gain 0.90%
Bank gain 0.001
Net 0.80%

A 0.004
B 0.004

Cost of B

Pay A 12% A's gain B's gain

Pay Bank 0.001 Market 12% Mak
A's gain 0.004 Rcd from B 12.40% A
13% 0.40% Lib d
ttractive for both the companies. Co A requires floating rate and Co B requires fixed rate.

13.40%
13%
0.005
0.40%
Value of the swap is the net PV of all expected future cash flows, interest rate swap value is determined by summing up the PV

Notional principal 10000000 Notional 10000000

Annual fixed rate 3.50% Interest 3.50%
Floating rate

Treasury curve
Time (years) Int rate Co wants to pay floating and receive fixed for 6m libor
0.5 3.00%
1 4.00% Time Rate Discount factor CF
1.5 4.00% 0.5 3.00% 0.98533 175000
2 3.50% 1 4.00% 0.96154 175000
1.5 4.00% 0.94287 175000
2 3.50% 0.93351 10175000

Value of the swap 3082.613

d by summing up the PV of its cash flows, starting with determing the correct discount factor calculated for each period of cash flow.

Note: Floating rate bond reprices itself back to par at every single coupon date.

ed for 6m libor
Pay floating
PV Time CF PV
172432.6237 0.5 10150000 10001092.17
168269.2308 1
165001.556 1.5
9498471.376 2
10004174.79 10001092.17
or each period of cash flow.

oupon date.
Value of the swap is the net PV of all expected future cash flows, interest rate swap value is determined by summing up the PV

Notional principal 10000000 Notional 10000000

Annual fixed rate 3.00% Interest 3.00%
Floating rate

Treasury curve
Time (years) Int rate Co wants to pay floating and receive fixed for 6m libor
0.25 2.80% Pay fixed
0.75 3.20% Time Rate Discount factor CF
1.25 3.40% 0.25 2.80% 0.9931 150000
0.75 3.20% 0.9767 150000
1.25 3.40% 0.9591 10150000

Value of the swap -45197.78

d by summing up the PV of its cash flows, starting with determing the correct discount factor calculated for each period of cash flow.

Note: Floating rate bond reprices itself back to par at every single coupon date.

ed for 6m libor
Receiving floating
PV Time CF PV
148967.9977 0.25 10145000 10075202.24
146497.9293 0.75
9734538.538 1.25
10030004.47
10075202.24
or each period of cash flow.

oupon date.
Data
Firm Value (V) 1000 ST Liabilities 400
Expected return(mu) 20% LT Liabilities 400
Time(T) 1 Default Point 600
Volatality (Sigma) 25%
Growth rate 0.510826
0.5108256
Numerator 67.9576%

Denominator 0.25
Distance to default 2.72 Sd away from the mean

PD 0.33%
If the firms grows continuosly at a compounded rate of 51%
FV 1000
Hazard rate 5% Default Intensity
Maturity 5 Yrs

Time HR PoS P(D)

1 5% 0.9500 0.0500
2 5% 0.9025 0.0475
3 5% 0.8574 0.0451
4 5% 0.8145 0.0429
5 5% 0.7738 0.0407
0.7738 0.2262

1.0000

Notional 10000000
P(D) Annual 1.73% Defaults occur mid year
Recovery rate 25%
Cost of finance 6.11%
Duration 6 yrs
PV of Expected payments

Years P(D) PoS

1 1.73% 98.27%
2 1.70% 96.57%
3 1.67% 94.90%
4 1.64% 93.26%
5 1.61% 91.64%
6 1.59% 90.06%
occur mid year

Discount factor DCF Swap rate given no default Swap rate given default Discount factor
0.9424 0.9261 0.0087 0.97078
0.8882 0.8577 0.0085 0.91488
0.8370 0.7943 0.0084 0.86220
0.7888 0.7356 0.0082 0.81256
0.7434 0.6813 0.0081 0.76577
0.7006 0.6309 0.0079 0.72167

4.6260
 PV of payments from protection

DCF Swap rate given default Swap rate payable given default Discount factor
0.00840 1.30% 0.97078
0.00778 1.28% 0.91488
0.00720 1.25% 0.86220
0.00667 1.23% 0.81256
0.00618 1.21% 0.76577
0.00572 1.19% 0.72167

0.04194

Expected payable by seller 0.06292

Expected recivables as premium 4.6679
Swap rate 0.0134785904436255
Bps 134.785904436255

0
DCF payable given default
0.01260
0.01167
0.01080
0.01001
0.00927
0.00858

0.06292