An investor would like to invest €110,000. He has three alternatives: Investing in nine-month T-bills with a par value of €128,000. Investing in six-month commercial papers with a par value of €120,000 Investing in a three-month negotiable certificate of deposit paying an interest rate of 22%. Which is the best investing alternative (the price for each security is equal with €110,000)?

An investor would like to invest €110,000. He has three alternatives: Investing in nine-month T-bills with a par value of €128,000. Investing in six-month commercial papers with a par value of €120,000 Investing in a three-month negotiable certificate of deposit paying an interest rate of 22%. Which is the best investing alternative (the price for each security is equal with €110,000)?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose you are working as a treasurer in Citibank and your bank has taken a PKR250 million loan. The interest on the loan is KIBOR+50bp paid semiannually. The duration of the loan is four years. As you will have to pay interest, you are worried that in the future interest rates are likely to increase and you want to hedge this position by entering into a Swap contract. You ask Bank Al-Habib whether they would be willing to enter into a swap agreement and they send you these semi-annual swap rates: Period Bank Pays Bank Receives 2 years 3.34 3.37 3 years 4.01 4.04 4 years 4.47 4.50 5 years 4.79 4.82 6 years 5.02 5.05 Consider the following questions: What is the company’s cost of funds?
What is the present value of a security that promises to pay you $5,000 in 20 years? Assume that you earn 7% if you were to invest in other securities of equal risk.
you are considering investing in a four year security which pays 6,000 in one year. 6,000 in two years, 6,000 in 3 years and 17,500 in 4 years. the security currently trades at a price of of 18,483.77. What is the yield to maturity of the security? What is duration?
If a security currently worth $5,600 will be worth $12,379.82 seven years in the future, what is the implied interest rate the investor will earn on the security—assuming that no additional deposits or withdrawals are made? If an investment of $35,000 is earning an interest rate of 4.00%, compounded annually, how many years will it will take for this investment to reach a value of $44,286.17—assuming that no additional deposits or withdrawals are made during this time? Which of the following statements is true—assuming that no additional deposits or withdrawals are made? If you invest $1 today at 15% annual compound interest for 82.3753 years, you’ll end up with $100,000. If you invest $5 today at 15% annual compound interest for 82.3753 years, you’ll end up with $100,000.
A security dealer plans to purchase $100 million of T-notes at the next auction. The dealer anticipates holding the securities one day and plans to finance the purchase with an overnight repurchase agreement. Currently overnight repo rates are at 3%. Explain how the repurchase agreement would work in this case? Determine the dollar interest, selling price, and repurchase price on the repurchase agreement? What type of repurchase agreement would the dealer need if there was a possibility that it could take several days to sell the securities?
You have $5,000 to invest for the next year and are considering three alternatives:a. A money market fund with an average maturity of 30 days offering a current yield of 6% per year.b. A 1-year savings deposit at a bank offering an interest rate of 7.5%.c. A 20-year U.S. Treasury bond offering a yield to maturity of 9% per year.What role does your forecast of future interest rates play in your decisions?
You are considering an investment in a 40-year security. The security will pay $25 a year at the end of each of the first three years. The security will then pay $30 a year at the end of each of the next 20 years. The nominal interest rate is assumed to be 8%, and the current price (present value) of the security is $360.39. Given this information, what is the equal annual payment to be received from Year 24 through Year 40 (for 17 years)?
Suppose you borrow RM10,000,000 in the interbank money market at a KLIBOR yield of 6% p.a for a term of 1 month. Should you buy or sell KLIBOR futures contract if you were to hedge against interest rate risks?
A trader, Peter, buys a treasury note with a face value of 1000, which will mature in 180 days. Currently such T-notes are yielding 4.25% per annum. a) what amount will peter pay for the T-note? b) What is the annual rate of return (HPY) for peter? c) what is the current yield of maturity (YTM) for the security?
An investor is presented with the following two alternative investment strategies: purchase a 3-year bond with an interest rate of 6% and hold it until maturity or, purchase a 1-year bond with an interest rate of 7%, and when it matures, purchase another 1-year bond with an expected interest rate of 6%, and when it matures, purchase another 1-year bond with an interest rate of 5%. What is the expected return of the first strategy? What is the expected average return over the 3-years for the second strategy? Why does our anayses of the expectations theory indicate that this is exactly what you should expect to find?
You are considering investing $10,000 in either U.S. Treasury bills or bank certificates-of-deposits (CDs). Suppose 6-month U.S. Treasury bills and 6-month bank CDs are both yielding 4.50% annually. Both investments are considered "default- risk free." Which investment shouldyou probably select. Briefly explain
You have $5000 to invest for the next year and are considering three alternatives: a money market fund with an average maturity of 30 days offering a current yield of 6% per year. a 1-year savings deposit at a bank offering an interest rate of 7.5% a 20-year U.S. Treasury bond offering a yield to maturity of 9% per year What role does your forecast of future interest rates play in your decisions?

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