Bond Sales and Trading
What do they look for in S&T applicants? I may be able to get an interview due to networking, but the problem is I have a low GPA (3.2). Will this be a deal killer in an interview? I am quite knowledgeable when it comes to the markets and finance, but I assume that my weak GPA will still be a problem. How do I get past it?
What school do you go to and what's your major? If you go to a target and have a quantitative major then I believe a 3.2 isn't all that bad.
A 3.2 is not a killer, especially if you have good internships or demonstrated market knowledge.
You say you know a lot when it comes to markets and finance. Can you give me an example of something you know that fixed income s&t interviewers might be impressed by?
Here's a question. If a 5 yr security has a 5% coupon and trades at par, and rates drop to 0%, what would you pay for it?
Jimbo
125
PV=CFi*DFi
assuming a fixed 5% coupon and a flat yield curve with r=0 => DF=1/(1+r)=1
PV=51+5151+51+1051=125
any comments on my solution?
nothing since it won't give interest payments?
The bonds coupon is still 5%. What would you pay for this bond in an environment where other instruments are yielding 0%?
You are correct
but unfortunately I've never been asked such easy stuff. This is maybe a starter so that the candidate feels more self-confident.
Don't even try to complain about my grammar and spelling mistakes!
I don't think it's such an easy question, especially for kids right out of college who probably haven't thought about bond prices all that much.
How about this one. I have 100 doors. They are all closed. I now go an open them all. Then I close every other door (ie 2,4,6). Then I go to every third door (ie 3,6,9), and if it's open, I close it, and if it's closed I open it. The same for fourth, fifth, etc. When I finally get to 100 I perform an action (either opening or closing) on that door and then stop. After all of this, how many doors are open?
jimbo
yeah, you are right.
10 (#1,4,9,16,25,36,49,64,81 and 100)
How do you do this without a piece of paper?
If I offered to bet your 1k on a coin flip, heads I win, tails you lose, would you do it?
What about for 10k?
What about for a year's salary?
assuming a fair game with an expected value of zero
if I had nothing better to do I think I'd play the game. In the long run your profit/loss should be zero.
I wouldn't play the game, because my total capital could be lost after some games. if I start with 30k the probability of losing all my money after three games is 12,5%
no
prob losing all my money in the first game is 50% (assuming I have a starting capital of one year's salary).
it depends on your starting capital, because in the long run your p/l should be zero.
ups
Don't even try to complain about my grammar and spelling mistakes!
doesn't this mean you always win? so the answer is no i don't want to play that game!
that one trips people up a lot.
what about the coin flips?
again i like your thinking. you'd be surprised how may ppl would say "zero expected value, I'd play". I have had ppl claim they would bet 10 years of salary on a single flip, if i make the pv slightly positive. that's insanity.
but think about this. is there a quick way to determine if a door is open or closed? how many times must it be "touched" to be the one or the other? specifically an even or an odd number of times?
well is there a quick way to determine?
indeed, a door number x is open if and only if x is a perfect square..hence for 100 doors 10 are open since there exist 10 perfect squares between 1 and 100 inclusive.
oh man, you are 100% right.
the question is really mean, I haven't realized that I always lose. That happens if you take it too easy.
Don't even try to complain about my grammar and spelling mistakes!
Here's a good one:
A zero-coupon bond is currently trading at 80 (worth 100 at maturity). Assume interest rates are random.
There is a security that pays 1 dollar when the aforementioned bond is worth 95 dollars, what is the price of this security today?
Basically I saw that if a door is touched an "even" number of times it'd be closed. If it was touched an "odd" number of times it'd be open. What numbers have an odd number of factors? Only the square roots.
you mean squares.
corgi i think you need a lot more info than that. you want a price on a digital cap on a zero, but you haven't given tenor or volatility of the underlying.
mental lapse. only numbers with integral square roots, ie the squares
Don't need either of those Jimbo.
Maybe I'm looking at it wrong. But if you have 1 year zero trading at 80, maturing at par or a 20 year zero at 80, the price of this cap will be different. The cap will be triggered but the question is the timing, and the pv of the instrument.
it's a risk-free fixed income product jimbo, pv is already incorporated into prices, but there's only 1 possible price that doesn't give rise to arbitrage (hint hint)
wow, I'm surprised no one has answered my question yet.
I have no idea. I'd guess somewhere around80/95 = 84.2 cents.
nice guess
let P be the price of the security, then sell 1 zero and use that money to buy 80/P securities. When the zero's price is 95, those securities are each worth 1 dollar so your portfolio is worth 80/P dollars. This must equal the price of the zero = 95
therefore 80/P = 95 or P = 80/95
hey I've been studying all this material on investopedia and with the book by Hull. anywhere else I should be looking? thanks
Quite technical but you might try the Wilmott wensite
http://www.wilmott.com/
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