a.If the interest rate is 10%, what is the present value of a security that pays you K1,100 next year, K1,210 the year after, and K1,331 the year after that?
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Question 4
a.If the interest rate is 10%, what is the present value of a security that pays you K1,100 next year, K1,210 the year after, and K1,331 the year after that?
b.Find the investment yield of a 90-day T-bill for K380milion per K400million face value.
c.Explain the repayment schedule of Zambia’s ten-year US$750 million Eurobond issued in 2012.
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- Question 4 If the interest rate is 10%, what is the present value of a security that pays you K1,100 next year, K1,210 the year after, and K1,331 the year after that? Find the investment yield of a 90-day T-bill for K380milion per K400million face value. 3. Explain the repayment schedule of Zambia’s ten-year US$750 million Eurobond issued in 20122. Suppose today's exchange rate is $1.23/€. The three-month interest rates on dollars and euros are 6% and 3 % (both anual rates), respectively. The three-month forward rate is $1.25. A foreign exchange advisory service has predicted that the euro will appreciate to $1.27 within three months. Consider 1 million euros. a.. How would you use forward contracts to speculate in the above situation? b. How would you use money market instruments (borrowing and lending) to speculate? C. Which alternatives (forward contracts or money market instruments) would you prefer? Why? d. Can you make profits without risks? If so, explain and calculate how you do that.Suppose a German importer owes an Australian exporting company 150,000 AUD, due in three months. What is the expected value of payables in AUD under hedge?
- A)Find the investment yield of a 90-day T-bill for K380milion per K400million face value. B)Explain the repayment schedule of Zambia’s ten-year US$750 million Eurobond issued in 2012. C)Assume the following spot rates. Year Spot rate 1 3 2 4.5 3 5.5 Calculate the one-year forward rate over the second year. Calculate the one-year forward rate over the third year.(1) A single payment security matures in 100 days and has a maturity value of $50,000. What would be price be if: (a) A discount rate of 3% is applied (b) A discount rate of 8% is applied Assume that this is a U.S. security, so Days in a Year (diy) is 360.Suppose you observe that 90-day interest rate across the eurozone is 5%, while the interest rate in the U.S. over the same time period is 1%. Further, the spot rate and the 90-day forward rate on the euro are both $1.60. You have $500,000 that you wish to use in order to engage in covered interest arbitrage. To start, you exchange your $500,000 for (for when you convert the euros back to dollars), you euros, and deposit the funds in a bank in the eurozone. To lock in the exchange rate euros forward at a forward rate of $1.60.
- Assume UK one-year money market interest rate is 8%. A Ghanaian firm is planning to borrow British pounds, convert them into cedi and repay the loan at the end of one year. Available information is that the cedi currency will depreciate by 21% against the pound sterling by the time of payment of the loan. Determine the effective financing cost of borrowing the British pound. Will you finance with a local loan costing 28% per annum or the pound sterling loan?A3) Finance Currently, the GBP/USD rate is 1.5050 and the three-month forward exchange rate is 1.5269. The three-month interest rate is 6.2% per annum in the U.S. and 4.1% per annum in the U.K. Assume that you can borrow £1,000,000 or its equivalent in USD. How much do you make/lose if you borrow the local currency and invest abroad? (USD, no cents)Currently, the spot rate is RM4.2000/USD and the one year forward rate is RM4.1000/USD. Interest rate in United States is 3% per annum and in Malaysia is 2% per annum. Assume that you can borrow as much as USD100,000 or RM420,000 for your coming project. If Interest Rate Parity (IRP) is not holding, determine how would you carry out covered interest arbitrage (CIA) and compute the profit.
- Suppose that the current EUR/GBP rate is 0.6674 and the one-year forward exchange rate is 0.6748. The one-year interest rate is 1.4% in euros and 3.4% in pounds. You can borrow at most €1,000,000 or the equivalent pound amount. Suppose you are a Euro-based investor. Determine the profit/loss (in EUR, no cents) if you borrow locally and invest in pounds3. Suppose that the treasurer of IBM can borrow $100,000,000 or its gbp equivalent, and observes the following quotes: the 120-days interest rate is 8 percent per annum in the United States and 6 percent per annum in United Kingdom. Currently, the spot exchange rate is $1.20 per gbp and the 120-days forward exchange rate is $1.30 per gbp. Treasurer calculates possible future Spot exchange rate (in 120 days) considering PPP with expected inflation rates of 4 percent per annum in the United States and 2 percent per annum in United Kingdom. Calculate (if exists) Covered Interest Arbitrage and Uncovered Interest Arbitrage. Explain differences between CIA and UIA.(C) US Bank is considering investing in a three years' project in Europe country. The project would require an initial investment of $750,000 and it is expected to generate €80,000, €100,000 and €150,000 in year one until three, respectively. The business risk will be identical to the firm's existing line of business in the euro-zone, the required rate of return in the euro-zone is 18 percent. The exchange rate is $1.20/€ where the dollar also shows appreciating by one percent for every year. Determine the Net Present Value (NPV) in dollar currency for this project and justify.
