1. You own $2,000,000 of par value of a 3% semi-annual coupon 6 year Treasury Note. If the quoted price of this note is 105 4/32 and the accrued interest is 0.56325. If “haircuts” are 8% what is the maximum dollar principal you could borrow under a repurchase agreement?
2. You agree to buy a bond in three months using a futures/forward contract. Explain how you could create the same position using the Repo market.
3. The yield curve is inverted. You enter into a 30 day forward contract to purchase a $1,000,000 par value four year 6% annual coupon Treasury Bond at an effective annual YTM of 4%. (You must first calculate the market value of the bond.) If the 30 day repo rate is 6% what is the fair price of the forward contract? (For this question, assume the repo rate is quoted using effective annual compounding.)
4. For the bond in #3 above calculate the “carry” on a 30 day repo of the bond using the same assumptions as above.
5. If you agree to enter into a five year receive floating pay fixed interest rate swap, will the value of your swap increase or decrease if all spot rates decrease by 50 basis points?