Q5 You are a bond trader. Set up an excel spreadsheet to price 6 bonds....
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Q5 You are a bond trader. Set up an excel spreadsheet to price 6 bonds. They have an annual coupon paid semi--annually (twice per year) with a notional value of $6000 (annual) and a face value of $100,000. Your portfolio is made up of ten year bonds and cash. Some bonds have 10 years to maturity and some have 5 years (10 payments left). You may presume it is 1 Jan, and bonds pay out on 31 Dec and 30 June. (a) What are the price of 10 year bonds if the interest rate is 6%, 6.5% and 5.5%. (6 prices). (b) Interest rates are currently 6.5% and your analysts forecast that a pandemic will be a negative shock to the economy and mean that interest rates will suddenly drop to 5.5%. You can make two trades of up to $10million each per day and you are managing a portfolio with thousands of bonds of each type. What trade(s) do you execute - and what is your profit if the forecasters are correct. You cannot trade partial bonds
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