Bond has a face value of ₡3000 and pays coupon of 12% per annum for 4 years, if the market interest rate is 16%. How much will you pay for this bond. If the coupon was to be paid semi- annually will your answer be different.
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a) Bond has a face value of ₡3000 and pays coupon of 12% per annum for 4 years, if the
market interest rate is 16%. How much will you pay for this bond. If the coupon was to be
paid semi- annually will your answer be different.
b) A U.S. investor obtains Ghana cedis when the cedi is worth $.33 and invests in a one-year
investor converts the proceeds from the investment back to dollars at the prevailing spot
rate of $.26. What is the effective yield earned by this foreign investor?
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- a) Bond has a face value of ₡3000 and pays coupon of 12% per annum for 4 years, if the market interest rate is 16%. How much will you pay for this bond. If the coupon was to be paid semi- annually will your answer be different. b) A U.S. investor obtains Ghana cedis when the cedi is worth $.33 and invests in a one-year money market security that provides a yield (in cedis) of 24%. At the end of one year, the investor converts the proceeds from the investment back to dollars at the prevailing spot rate of $.26. What is the effective yield earned by this foreign investor?IBM is considering having its German affiliate issue a 10-year, $100 million bond denominated in euros and pricedto yield 7.5%. Alternatively, IBM’s German unit can issuea dollar-denominated bond of the same size and maturityand carrying an interest rate of 6.7%.a. If the euro is forecast to depreciate by 1.7% annually, what is the expected dollar cost of the eurodenominated bond? How does this compare to the costof the dollar bond?b. At what rate of euro depreciation will the dollar cost ofthe euro-denominated bond equal the dollar cost of thedollar-denominated bond?c. Suppose IBM’s German unit faces a 35% corporate taxrate. What is the expected after-tax dollar cost of theeuro-denominated bond?Suppose you (U.S. investor) purchase a 5-year, AA-rated Euro bond for par that is paying an annual coupon at the rate equal to 8 percent. The bond has a face value of 1,000 Euros. The spot exchange rate at the time of purchase is USD1.15/EUR. At the end of the year 1, the bond is upgraded to AAA-rated and the yield changes to 7.5% per annum continuous compounding. In addition due to changes in macroeconomic environment, the exchange rate also changed to USD1.25/EUR. Assume that a U.S. investor holds this bond for one year and sells it in the market at the end of year 1. EUR is the abbreviation for Euro and USD is the abbreviation for U.S. dollar. What is the overall gain / loss in U.S. dollars for the U.S. investor at the end of year 1 (t = 1 year)? (Roundoff your answer to four decimal places, in order to get as accurate answer as possible on Canvas. If your answer is -$1.2345, loss of $1.2345, then type your answer as -1.2345.)
- You are an American investor who can borrow $1,000,000 or the equivalent amount in euros today. Suppose the spot rate is $1.18/€, and the one-year forward rate is $1.15/€. The annual interest rate is 4 percent in the U.S. and 2 percent in Germany. Check if IRP holds. If it does not hold, set up a covered interest arbitrage. What will be your profit from this arbitrage opportunity in dollars?a) At 21 February 2018, the US Government could borrow at an annual 10-year yield of 2.89%. At that yield, how much were financial markets paying for the right to receive $100 from the US Government 10 years later? (b) Suppose a 5-year zero-coupon bond (??? = $100) issued by the US government is currently trading at $90. What is the annual yield an investor would receive for buying such a bond and holding it to maturity? (c) Suppose the US Federal Reserve (the US Central Bank) wants to lower longer-maturity yields. Briefly explain the process (known as Quantitative Easing) it could use to achieve this.a. The spot price of the British pound is currently $1.50. If the risk-free interest rate on 1-year government bonds is 1% in the United States and 2% in the United Kingdom, what must be the forward price of the pound for delivery one year from now?b. How could an investor make risk-free arbitrage profits if the forward price were higher than the price you gave in answer to part (a)? Give a numerical example.
- Mr James Lucky, a British investor, is considering a five-year investment on zero-coupon government bonds. Currently, the annual yield to maturity of British, German and Chinese zero-coupon government bonds maturing in five years is 3%, 5% and 7%, respectively. The spot exchange rate between the GBP and the Euro is £:€ = 1.18, while between the GBP and the CNY is £:CNY = 8.58. According to Mr Lucky's forecasting models, the spot exchange rates are expected to be £:€ = 1.37 and £:CNY = 8.25 in three years from today. %3D Which of the three bonds would provide the highest cumulative return for Mr Lucky over the next five years, if the exchange rate forecasts turn out to be correct? Provide all your workings and full calculations, when answering this question. ii) What is the GBP to CNY rate (three-year) forecast that would make Mr Lucky indifferent between investing in either the British or the Chinese bond today? Provide all your workings and full calculations, when answering this…Assume the spot rate between the uk and the US is .€ .6789= $1 while the one year Foward rate is €.6782=$1. The risk free rate in the UK is 3.1 percent. The risk free rate in the U.S is 2.9 percent. How much profit can you earn for the year on a loan of $1,500 by utilizing covered interest abitrage?Suppose you have INR 10millions that you can invest in for one year anywhere in the world without any restriction. You are considering to either investing in the US or in India. The interest rate on one-year bonds in India is 9% and on one-year bonds in the US is 8%. The current exchange rate is INR 74.525/USD. What should be the one-year forward rate so that you earn the same return whether you invest in India or in the US. a. 73.84128 b. 74.525 c. 75.21505 d. All the options are wrong e. 70.12125
- A U.S. investor obtains Ghana cedis when the cedi is worth $.33 and invests in a one-year money market security that provides a yield (in cedis) of 24%. At the end of one year, the investor converts the proceeds from the investment back to dollars at the prevailing spot rate of $.26. What is the effective yield earned by this foreign investor?An investor has $10m to invest and has the following options: 1) depositing it in a US bank account paying 3% annually, or 2) depositing it in a German bank, where the annual rate of interest is only 2%. Assume that today the current spot exchange rate for the Euro is given as $1.2750, while the 1-year Dollar-Euro forward rate is posted as 1.2995. a. Based on your knowledge of the relationship between interest rate differentials and the current dollar-euro forward premium or discount, in which country should the investor deposit her money? why? b. If you had the power to adjust the German interest rate, with all else constant, what rate would you establish, such that the investor is totally indifferent between depositing in either countries? Show your work and the logic behind it.Suppose the U.S. Treasury offers to sell you a bond for $2,000. No payments will be made until the bond matures 15 years from now, at which time it will be redeemed for $4,000. What interest rate would you earn if you bought this bond at the offer price?