The treasurer of a large corporation wants to invest $35 million in excess short-term cash in a particular money market investment. The prospectus quotes the instrument at a true yield of 4.39 percent; that is, the EAR for this investment is 4.39 percent. However, the treasurer wants to know the money market yield on this instrument to make it comparable to the T-bills and CDs she has already bought. If the term of the instrument is 79 days, what are the bond equivalent and discount yields on this investment? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 3 decimal places.
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- 9. The treasurer of XYZ Corp. knows that the company will need to lend $100 million in one year for a one year period. LIBOR rates today are at 4% but the company's treasurer expects LIBOR rates to go down to 2% in 1 year. If treasurer's expectations turn out to be correct the company will be forced to lend at a lower rate unless some sort of hedge is created to protect the rate of return on the loan. In this situation the XYZ's spot market risk exposure is and the treasurer should pay and receive under the FRA agreement in order to hedge its spot market risk exposure. Short; Pay LIBOR; Receive Fixed b. Short; Pay Fixed; Receive LIBOR Long; Pay LIBOR; Receive Fixed d. Long; Pay Fixed; Receive LIBOR Neutral; Pay Fixed; Receive LIBOR a. с. е.A bank is able to issue a $500,000 worth of a 90-day commercial paper with a 2% discount yield and an equivalent size and risk 90-day certificate of deposit with a 3% single payment yield today. Prices of securities are quoted assuming no arbitrage, and hence the present value of all future cash flows for the securities are equivalent to their corresponding prices. The bank is considering the issuance of either the commercial paper or the certificate of deposit to replicate the effective-annual return (interest rate) of a zero-coupon bond currently included in the bank's portfolio. This bond is currently quoted in the market at $910.55 and matures in three years. The bond has the standard par value (face value) of $1,000 and a yield to maturity of 3.173%. Which security should the bank issue to replicate the effective-annual return of the zero-coupon bond? Issue commercial paper o Issue certificate of depositThere is a loss, with 1% probability of default, expected to be between $50 million and $200 million, with equal probability of loss in that range. Determine the fair price of insurance to protect the institution against a loss of over $130 million for this risk.
- A financial institution uses a loan base rate of 4.35% and sets the credit risk premium at 6.68%. The institution charges a 1.5% loan origination fee and imposes 3.22% compensating balances. The required reserves for this institution are 10%. Additionally suppose your institution specifies the following linear probability model to estimate the probability of default: PD=80-8₁ Wealth - B₂Credit Score + B3 Number of Bankruptcies Bo= 10, 109.5 8₁0.10 B₂ = 0.20 B3 = 0.60 Use the information above to answer the question. What is the gross rate of return on the loan? O 9.31% O 11.03% O 12.53% 12.90%Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $31,950,000, with the promise to buy them back at a price of $32,000,000. a. Calculate the yield on the repo if it has a 5-day maturity. b. Calculate the yield on the repo if it has a 15-day maturity. (For all requirements, use 360 days in a year. Do not round intermediate calculations. Round your percentage answers to 5 decimal places. (e.g., 32.16161)) a. b. X Answer is complete but not entirely correct. Yield on the repo Yield on the repo 1.02857 % 0.34286 %An investor has at most $10,000 to invest in government bonds, mutual funds, and money market funds. The average yields for the government bonds, mutual funds, and money market funds are 8%, 7%, and 13% respectively. The investor's policy requires that the total amount invested in mutual and money market funds not exceed the amount invested in government bonds. How much should be invested in each type of investment in order to maximize the return? What is the maximum return in the first year? How much should be invested in government bonds? How much should be invested in mutual funds? How much should be invested in money market funds? What is the maximum return in the first year?
- Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $25,950,000, with the promise to buy them back at a price of $26,000,000. a. Calculate the yield on the repo if it has a 5-day maturity. b. Calculate the yield on the repo if it has a 15-day maturity. (For all requirements, use 360 days in a year. Do not round intermediate calculations. Round your percentage answers to 5 decimal places. (e.g., 32.16161)) Yield on the repo a. % b. Yield on the repoConsider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20 million and trade-related letters of credit with a face value of $70 million. All counterparties have a credit rating of BBB. What is the total capital amount the FI needs to hold against these exposures? (Assume data obtained from 2020 FI records) Select one: A. $5.04 million B. $9.87 million C. $8.4 million D. $7.52 millionA bank has two investment options to chose from for short term investment: Option A: A money market security issued by a multinational corporation with a face value of $2000 with 120 days to maturity to be traded for $1850. Option B: A 60-day tax exempted government bill with a face value of $2000 to be traded for $1950. The corporate tax rate on bank earnings is 40%. Which security would you chose based on the after tax YTM return? Justify by showing your calculations appropriately.
- Consider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20 million and trade-related letters of credit with a face value of $70 million. All counterparties have a credit rating of BBB. Assuming a required capital ratio of 8%, what is the capital amount the FI needs to hold against these exposures? ANSWER MUST BE 7.52 millionA financial institution uses a loan base rate of 4.35% and sets the credit risk premium at 6.68%. The institution charges a 1.5% loan origination fee and imposes 3.22 % compensating balances. The required reserves for this institution are 10%. Additionally suppose your institution specifies the following linear probability model to estimate the probability of default: PD = Bo - Bi Wealth-B2Credit Score + B3 Number of Bankruptcics Bo = 10, 109.5 %3D B1 = 0.10 %3D B2 = 0.20 %3D B3 = 0.60 %3D Use the information above to answer the question. What is the gross rate of return on the loan? O 9.31% O 11.03% O 12.53% O 12.90%Mr. Aiman, Treasurer of AJ Finance Berhad, has just completed a Maturity Bucket Analysis based on the a 6-month horizon. a) If the market expectation is increase in interest rates, find the maturity bucket should Mr. Aiman, worries most about. Explain why the particular bucket matters. b) Outline an appropriate hedge strategy for Mr. Aiman,.