Individual ProjectDerivatives: Options and Futures, Hong Kee SulInstructions: You must hand in a printout with the answers, and send in the excel sheetthrough email, before beginning of the class on Nov 28, 2018. For simplicity, let’s assume thatthe APR convension is used throughout this project. Answers should be exact up to threedigits for full credit. If it is required that you use the answer from the previous questionto answer the followup questions, it is suggested to use formula from the previous answer,and not the value itself. (To prevent from the rounding errors distorting the answers in thefollowup questions.)1. (50 points) You are the portfolio manager of the RV Insurance Company.(a) (5 points) The insurance company has the following bonds available for investment. First, determinethe characteristics of these semiannual bonds. Bond B1: Given Number of Periods to Maturity is 8, Face Value is $1,000.00, Discount Rateper year is 4.54%, and the Bond Price is $880.00. What is the Coupon Payment in dollars? Bond B2: Given Number of Periods to Maturity is 6, Face Value is $1,000.00, Coupon Paymentis $10.00, and the Bond Price is $955.00, what is the Discount Rate per year?(b) (5 points) In addition to the bonds listed in the previous question, let’s assume that you can alsoinvest in the following two annual bonds. Bond T1: a 1-year bond with a face value of $1,000 andan annual coupon rate of 1.50%, Bond T2: a 2-year bond with a face value of $1,000 and an annualcoupon rate of 2.70%. These bonds are both priced at $985. Let’s assume that the firm has sold aseries of GIC contracts, so that the firm has the following series of liability to be paid: 4.5, 5.1, 5.6,6.3, 6.8, 7.2, 7.9, and 8.6. (Units are in millions, and each payment is due every 6 months so thatthe last payment is due in 4 years). We assume that at the firm level, the 3% annual yield is usedto discount cashflows. What is the break-even point of these series of GIC contracts? That is, howmuch should the Sales department of the RV Insurance Company charge for these contracts not toloose money? (Here we exclude transaction costs.) If the Sales department asked for a $500,0001premium for these contracts, how much should the buyer pay? (Hint: Here the break-even pointrefers to the present value of the liabilities, and Buyer pays break-even point + premium.)(c) (5 poinAPR留学生作业代做、代写java/C++程序设计作业、代做CS/python实验作业、代写RV Insurance作业ts) The company wants to construct a portfolio to fulfill it’s liability agreement. How manyof each bonds should the insurance company buy in order to fully fund the liability and be immunizedagainst the interest rate risk now? How much would it cost to construct this portfolio? Likewise,we use the 3% annual yield to discount cashflows. And for simplicity we assume that bonds can bedivisible.(d) (5 points) In this case what would be the convexity of assets and the convexity of the liabilities?(For the calculation of the Convexity, please refer to the method outlined in the tutorial)(e) (5 points) Assume that the transaction fee for buying bonds is 0.2% of the bond value for orderslarger than 10M$, 0.5% of the bond value for orders larger than 1M$, and 1% of the bond value forsmaller orders. What is the total dollar amount of fees for constructing the portfolio? In this case,what would be profit of this deal? (Hint: Profit = Break-even point - cost of constructing portfolio- total transaction fee + premium)(f) (5 points) Is there a portfolio that matches the same criteria, but maximizes the profit? What isthe Portfolio and the Profit in this case?(g) (5 points) After constructing the portfolio, the RV Insurance Company suddenly found out thatthey cannot sustatin a negative cash outflow exceeding 2 million dollars per period, during period6 through 8, due to business reasons. That is, they want to make the net cash flow in periodsbetween 6 and 8(t =3, 3.5, and 4 years), larger than -0.2 M$. In this case how would the new profitmaximizng portolio be constructed? Is there anything strange about this portfolio?(h) (5 points) Now suppose that the firm suddenly found out that they could invest in a 3 and a halfyearsemiannual bond with a face value of $1,000 and an annual coupon rate of 4.0%, selling at parvalue. How would the answer to the previous question(Profit Maximizng Portfolio) change? If theyare any different, please explain why.(i) (5 points) If the transaction fees for selling bonds are identical to transaction fees for buying bonds,what is the total dollar amount of fees for adjusting your portfolio, from (c-e) to (h)? How aboutadjusting your portfolio from (f) to (h)?(j) (5 points) Are there any alternative methods to satisify their business neeeds rather than payingfor expensive transaction fees as in (i)? Be creative.转自：http://ass.3daixie.com/2018111723601859.html