The Midterm 4 (Final Exam) will be worth 100 points.
When: During normal class time Wednesday April 30th.
It will cover bond markets and derivative products and markets excluding options.
Text Chapters 7, 8, 9, 13, plus Swaps, and (time permitting) Caps, Collars and Floors
You should know:
Bonds and bond market characteristics. You must be able to discuss the bond listings and determine necessary information to set up the equation for the YTM. Contrast the coupon rate, current yield and yield to maturity. Discuss special features (e.g., convertibility, callable, etc..). Discuss risk and interest rates. Contrast corporate and government bonds and markets. Calculate duration and explain the concept of convexity.
Futures markets characteristics: You must be able to discuss the T-bond futures listing and be able to explain exactly what your obligation would be. Be able to discuss the cost of entering a contract. Be able to calculate gains or losses on your position.
Hedging with interest rate futures
Marking to market (margin accounts)
Valuing T-bond futures
Swaps: You must be able to overview the purpose of an interest rate swap and give an example. Be able to explain comparative advantage and its role in this product. Explain the "cost" of entering a swap.
Caps, Collars, and Floors: You must be able to overview the products, explain their use, and explain and illustrate the risk/reward schedule
Anticipated Makeup of Exam
20-30 multiple choice and 3-4 problems/essay or more if I use some short answer.
Email me with questions.