A U.S. Based company has a short-term cash balance of USD 10 million. The company intends to invest in government securities for 120 days. The current spot rate and futures exchange rate (December 2017 futures) of USD against GBP are 1.6971 and 1.6950 respectively. The U.S. treasury bill rate is 15 percent per annum. The British 120- day gilt rate is 5.60 percent per annum.
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- The real risk-free rate is 4%. Inflation is expected to be 3% this year, 4% next year, and then 3% thereafter. The maturity risk premium is estimated to be 0.0003 x (t - 1), where t = number of years to maturity. What is the nominal interest rate on a 7-year Treasury security? Do not round intermediate calculations. Round your answer to two decimal places.If market expectations are accurate, what are the expected yields to maturity on 1-and 2-year zero coupon bonds next year? And if you purchase a 3-year zero-coupon bond now, what is the expected total rate ofreturn over the next year assuming that you will sell the bond at the expected price(price that matches the expected yield in the previous part)? Ignore taxes.If a bank offers an investment opportunity for which the interest is compounded quarterly, and you will earn an annual effective interest rate of 19.25%. Determine the nominal interest rate. Note: when calculating interest rates, do not convert to a percent. Leave it in decimal format and round to 4 places after the decimal. So if you think the answer is 3.45678%, then leave it as a proportion as 0.0345678 and then round to 0.0346.
- Consider the following plain-vanilla swap. Party A pays a fixed rate 8.29% per annum on a semiannual basis (180/360), and receives from Party B LIBOR + 30basis point. The current six- month LIBOR rate is 7.35% per annum. The notional principal is $25M. What is the net swap payment of Party A? a. $20,000.00 b. $40,000.00 c. $80,000.00 d. $110,000.00What is the discount yield, bond equivalent yield, and effective annual return on a $7 million commercial paper issue that currently sells at 98.75 percent of its face value and is 122 days from maturity? (Use 360 days for discount yield and 365 days in a year for bond equivalent yield and effective annual return. Do not round intermediate calculations. Round your percentage answers to 3 decimal places. (e.g., 32.161))You are an investor currently holding 1.5 million U.S. dollars, and you are contemplating the following strategies. 1)Investing in the U.S. 5-year treasury bonds.2)Investing in the 5-year government bonds of one of the countries listed below. Your strategy is to exchange your funds on the spot market into the foreign currency, buy the local government bond, and after the bond’s maturity, exercise a forward to change your funds back into USD. Spot and forward rates are listed below. There are no put and call rates (the spread is equal to zero). The forward, however, costs 2% of the exchanged value.Required:1.Find the most profitable strategy. Calculate the future and present values of all 11 strategies (U.S. treasury bonds and 10 foreign government bonds).2.Explore the concept of arbitrage on the currency exchange markets and critically evaluate how it relates to this situation.
- Rework part (f), assuming that Annie holds the bond for 10 years and sells it when the required return is 7.0%. Compare your finding to that in part (f), and comment on the bond's maturity risk. PV= 1,000 N=10 I/Y= 7% Assume that Annie buys the bond at its current price of $983.80 and holds it until maturity. What will her current yield and yield to maturity (YTM) be, assuming annual interest? After evaluating all of the issues raised above, what recommendation would you give Annie with regard to her proposed investment in the Atilier Industries bonds?Caspian Bank has negotiated a plain vanilla swap in which it will exchange fixed payments of 8% for floating payments equal to LIBOR plus 0.5% at the end of each of the next three years. In the first year, LIBOR is 8%; in the second year, 9%; in the third year, 7%. What is the total net payment Caspian Bank receives, over the three-year period, if the notional principal is $10 million? (Please explain work)ABC Co. can borrow at either an 8.5% fixed rate or a floating rate of prime + 1.75%. Salmon Inc. can borrow at either a floating rate of prime + 1.25% or a fixed rate of 8.65%. ABC Co. prefers a floating rate and Salmon Inc. prefers a fixed rate. Which one of the following terms would be acceptable to both ABC Co. and Salmon Inc if they opted to enter an interest rate swap? A. 8.6% fixed for prime + 1.2% floating B. 8.5% fixed for prime + 1.75% floating C 8.65% fixed for prime + 1.3% floating D. 8.65% fixed for prime + 1.25% floating E. 8.6% fixed for prime + 1.3% floating Please show your work, Thanks!
- Pacific Amalgamated (PA) issues a coupon bond that makes an interest payment (F) of €100 each year for five years and then repays the face value (V) of €1,000 at the end of that time. Assume the interest rate (i) is 2%. Which of the following formulas do investors need to use to determine the present value of P = € of this coupon bond? A single payment of the face value at maturity The sum of fixed payments The sum of fixed payments and a single payment of the face value at maturity Pacific Amalgamated (PA) issues 10-year bonds in 2017 with a €1,000 face value and a €50 coupon. The interest rate at which PA issues these bonds is When the bond reaches maturity in 2021, how much will each investor holding one of these PA bonds receive? The initial investment of €1,000 plus €500 worth of coupons (€50 per year x 10 years) €500 worth of coupons (€50 per year x 10 years) The initial investment of €1,000 plus €50 for the 10th coupon Assume interest rates rise dramatically. The market price of…A bond with a face value of $1,000 has 8 years until maturity, has a coupon rate of 8%, and sells for $1,100. What is the yield to maturity if interest is paid once a year? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places. What is the yield to maturity if interest is paid semiannually? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places.You have been promoted to head of Treasury and Investment Management at Ecobank andhave been handed information on a number of issues for which immediate answers arerequired. For each excerpt from the issues presented below answer the associatedquestion(s):(i) Ecobank holds ¢500 million T-Bill but is in short of cash. It needs cash to meetthe requirement of a customer who has come to withdraw ¢400million.Youhave been asked to approach Barclays Bank to sell the T-Bill for ¢495 millionwith agreement to repurchase within 4 working days.(a) How much in cedis does Ecobank lose in this transaction(b) What is the Repo Rate on this transaction (ii) You have just been offered a commercial paper with a face value of ¢45,000,000which bears a discount of 36% and has 182 days to mature.(a) How much will you be prepared to pay for this paper? (b) What is the cedi discount on the paper? (iii) Ecobank plans to issue a 2-year bond with a face value of ¢500,000,000 bearing20% coupon rate. The market…