Nmims April 2022 Customized Assignments Explain the valuat

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Fixed Income Securities and Analysis II

1. Explain the valuation of the European puttable bond from an interest rate tree using a numerical example. (10 Marks)

2. During a press conference held last year amid the global slowdown due to the spread of COVID-19, Dave made a statement that it is beneficial to enter a credit default swap (CDS) as it will give insurance against the credit risk. Do you agree or disagree with the Dave s statement? Provide a detailed explanation of CDS along with its working and different terms associated with the CDS while making the argument in favor or against Dave s statement. (10 Marks)

3.a. Consider the following spot rates:
S1 = 5% S2 = 6% S3 = 7% S4 = 8%
Calculate four-years plain-vanilla interest rate swap rate. (5 Marks)

3.b. During a board meeting regarding the valuation of equity, Steve made an argument that the value of equity of the company can be calculated by making it analogous to options. Provide an explanation for Steve s statement in detail. (5 Marks)

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+9195030-94040