name: rogram:

1


Brandeis International Business School
FIN 261A: Fixed Income Securities
Midterm Examination
Spring 2012



Time: 40 minutes
Total Points: 20



Please write your name on each sheet, booklet and cheat sheet. You will need to return the cheat sheets
with your exam.
Please be precise in your statements, explain your reasoning, and write legibly.
The points attached to each question are given. Please budget your time wisely.
If you need scratch paper, please use the question sheets or the back pages of the answer booklet.

PLEASE DO NOT tear any page(s) out of the answer booklet
name: rogram:



2
art I (3 Cln1S)
Ceneral ConcepLs !"#$% '()*+$, (Answer each quesLlon ln no more Lhan Lwo or Lhree senLences of
ordlnary lengLh.)
1. Whlch wlll (ln general) have lower duraLlon: a bond wlLh a floaLlng-raLe coupon or a bond wlLh a
flxed-raLe coupon? Why?





2. Where wlll a yleld curve consLrucLed from callable bonds slL relaLlve Lo a yleld curve consLrucLed
from opLlon-free bonds? Why?





3. Lxplaln why a flnanclal asseL can be vlewed as a package of zero-coupon lnsLrumenLs.








art 2 (10 Cln1S LoLal)
name: rogram:



3
ou observe the fo||ow|ng 1reasury y|e|ds (a|| y|e|ds are shown on a bond equ|va|ent bas|s):

ear (er|od) |e|d to matur|ty Spot kate
0.3(1) 3.00 3.00
1(2) 6.00 6.00
1.3(3) 7.00 ?

1he secur|ty matur|ng |n 1.S years |s se|||ng at par. 1he 0.S and 1.0-year secur|t|es are zero-coupon
|nstruments.
1. Calculate the missing spot rate by using the bootstrap method.

P =
( ) ( ) ( ) ( ) ( )
1 2 3
1 1 1 1 1 + + + + +
n n
C C C C M
+ + + . . .+ +
y y y y y















name: rogram:



4

2. What should be the price of a Treasury security paying a 8% coupon, with 1 year (and 2
coupon payments) remaining to maturity?
























name: rogram:



3


art 3 (S po|nts tota|)
1. Ca|cu|ate the pr|ce and the Mod|f|ed durat|on of the fo||ow|ng bond. |ease not|ce |f the bond
|s traded |n ar]d|scount or rem|um. |e|d to matur|ty |s ca|cu|ated on a bond-equ|va|ent
bas|s, and the bond pays sem|annua| coupons.
8ond A
Coupon 10
?leld Lo maLurlLy 8
MaLurlLy (years) 2
ar $100.00




( )
1
1
1
n

r
PV = A
r
! "
#
$ %
+
$ %
& '




modified duration =
( )
( )
( )
1 2
100
1
1 1
n n
n C / y
C 1

y
y y
P
+
!
" #
! +
$ %
+ +
& '







name: rogram:



6