General Requirements for the exercise:

 Implantation with Excel with comments

 Calculation accuracy to the four decimal places
 Answer all the question and describe your method in pdf file
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1. (total 5 points) Today is 20 Feb 2019. Consider a fixed coupon bond:

 Nominal amount: 10 million
 Issue Date: 18 Jun 2018
 Maturity Date: 18 Jun 2028
 Coupon rate: 3.5% p.a. (day count convention is “ACT/365”, T+2)
 Coupon frequency: semi-annual
 Previous coupon settlement date: 20 Dec 2018
 Next coupon settlement date: 20 Jun 2019

Today’s clean price of bond in the market is 99.5%. Calculate

a) (2.5 points) Accrued coupon and Full price

b) (2.5 points) YTM (yield-to-maturity)

Note: the methodology for price/YTM calculation consists of

- discounting all the cash-flows until the next coupon settlement date with round number
of semi-annual periods and the coupon of 3.5%/2;
- then, discounting from the next coupon settlement date to spot date, i.e. T+2.

The calculation formula on course slides page 48 is an example with YTM=6% and coupon
rate of 5% p.a. payable semi-annually.
2. (total 5 points) Today is 20 Feb 2019. The market quotation for the 3 month USDJPY swap
points level is -79.03 pips. The USDJPY spot rate is 110.48. Given that USD money market
interest rate is 2.6649%. The conventions ACT/360, Modified Following, T+2 are applied to both
USD, JPY and the spot foreign exchange USDJPY.
a) (0.5 points) What is the 3 month USDJPY forward exchange rate?
b) (1.5 points) Calculate the implied money market interest rate for JPY.
c) (3 points) Someone is giving a quotation of the 3 month USDJPY swap points of -60.02 pips
for the size of USD 10 million. Construct an arbitrage strategy and calculate the profit
assuming that you can transact at spot rate and zero coupon bonds at the money market
interest rates as described (for USD) and calculated (for JPY) previously. (Hint: course slide
page 86)

3. (10 points) Today is 20 Feb 2019. Consider a 5Y vanilla Interest Rate Swap (IRS) of a currency
using ACT/365, Modified Following, T+2 conventions. The notional amount is 20 million of the
currency units. The floating rate is the 6 month LIBOR rate with today’s fixing at 2.7539%. For
simplifying the exercise, we assume that the yield curve is “flat” with YTM of 2.8% for all
maturities until 5Y.
a) (4 points) Calculate the market rate of the swap, i.e. the fixed rate such that the swap NPV
(Net Present Value) is zero.
b) (3 points) Calculate the current sensitivity BPV(*) for
I. the NPV of the fixed leg
II. the NPV of the floating leg
c) (3 points) Assume that the IRS has been transacted on 20 Feb 2019 with the fixed rate
calculated in a). On 13 Aug 2019, the yield curve is still “flat” with YTM at 2.8% for all
settlement dates of the IRS. Calculate the current sensitivity BPV for
I. the NPV of the fixed leg,
II. The NPV of the floating leg
(*)
Note: under this context, BPV means the change of the NPV w.r.t. 0.01% parallel shift of
the yield for the entire curve.

(Not Required: compare the sensitivities in b) and c) and make the conclusion for yourself only)