Please answer all questions.

Eurodollar Futures:

1. What is meant by a long position and a short position in Eurodollar Futures?
2. Explain using a numerical example why a long position in a Eurodollar Futures contract loses money when interest rate increases but gains when Eurodollar quote increases.
3. It is January now. Manager wants to refinance his assets in March and is concerned rates may rise. He wants to borrow $100m for 3 months starting March. The March expiry Eurodollar Futures Quote is 95. (i.e., 5% annual). Manager is fine with paying 5% interest on the borrowing. Compute the net cost to the manager is the Eurodollar settles at 90 in March.

Interest Rate Swap:

1. Explain in words how annualized spot rates can be computed from annualized futures rates?
2. It is March now. Compute the interest payments for a notional $25 million dollars if the 3-month futures quote with June expiry is 99.50 and the 3-month futures quote Sept expiry is 98.00.

Credit Default Swap:

1. Explain what is survival probability? What is default probability?
2. What is the meaning of protection buyer? Does a protection buyer buy a CDS contract or sell a CDS contract?

PVBP and Duration:

2017. Compute the PVBP, McCauley’s Duration and Modified Duration for the following bonds. Settlement date is September 29, 2017. Explain why the duration differs (if any) for bonds with the same maturity date. Note: For example, quotes coupon of 0.875 means coupon rate is 0.857%. Use excel Yield function to compute Yield to Maturity.

1. Compute the annual yield to maturity and annual spot rates given the following annual coupon bonds: