Treasury bonds

Q.1) Companies A and B have been offered the following rates per annum on a $40 million five year loan:

Fixed Rate Floating Rate
Company A 6.0% LIBOR+0.6%
Company B 7.4% LIBOR+1.1%
Company A requires a floating-rate loan; company B requires a fixed-rate loan. Design a
swap that will net a bank, acting as intermediary, 0.1% per annum and that will appear
equally attractive to both companies.

Q.2) Suppose that the Treasury bond futures price is 101-12. Which of the following four bonds is cheapest to
deliver?
Bond Price Conversion Factor
1 98-12 1.0382
2 132-08 1.8213
3 116-18 1.2428

Q.3) It is march 25 2008. consider an 8 coupon bond with 18 years and 4 month to maturity. Assuming that the face
value is $100 and that the discount rate is 6% per annum with semiannual compounding, calculate the conversion
factor.

Q.4) Consider a three-year coupon bond with a face value of $100 and a 9% coupon at the end of each year. Assume that
the yield on the bond is 12% continuously compounded. What is the bond’s duration?
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