13 Suppose that Argentina’s 10-year bonds are yielding more than 100 percent annually. Does this high yield make them suitable for Canadian investors looking to raise the return on their portfolios? Explain
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13
Suppose that Argentina’s 10-year bonds are yielding more than 100 percent annually. Does this high yield make them suitable for Canadian investors looking to raise the return on their portfolios? Explain
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- Question 1 Consider a French investment fund that has a €250 million position in a 96-year Austrian government bond. This bond has a 2.10% coupon rate, a par value of €100, an annual coupon payment frequency and a 0.75% yield. How much would the fund lose if the yield for this bond increased by 100 basis points to 1.75%? Explain your answer clearly.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.1. Suppose you are the proud owner of a $100,000 face-value Zimbabwe government bond having five years remaining to maturity with a fixed coupon interest rate of 5%. (a) Assume the bond pays semi-annual interest and that it is currently priced with a 40% yield-to-maturity. What is its current selling price? (b) The Zimbabwe government has proposed the following: in exchange for the bond you will receive an upfront cash payment equal to 15% of the original bond’s face value along with a new five-year bond paying a 2.5% coupon interest rate (paid semiannually) but with the face value reduced by 50 percent. Suppose markets indicate that these new bonds will be priced with a 20% yield-to-maturity. What would be the change in the present value of your investment if you participate in the exchange?
- D6) Since funds must keep flowing for a country to remain economically viable, briefly explain the role of financial institutions and financial markets in ensuring a regular funds flow between demanders and suppliers of funds. (80-100 words) A 15-year annual coupon bond trades for $1,200 in the market. If the market interest rate is 4%, what is the bond’s coupon rate?16. Your assistant gathered the following financial data for Japan: The real risk-free rate is 3%. Inflation is expected to be 2% this year and 4% during the next 2 years. What is the required return on 2-year Treasury bond securities? Since the maturity is only 2 years we will assume that no premium should be required for the maturity risk.* a) 6% b) 8% c) 6.33% d) 8.33 % e) None of the abovea) 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.
- Part B Today, three years later, yields on US Treasuries are as shown below. Treasury Yield (%/year) And Thrumbauer's improved financial performance has resulted in its credit rating improving to A. (i) Should its risk premium today be: Choose one and expalin your answer. (ii) Using the risk premium selected above, what would be the interest (yield) on Thrombauer's bond today? (iii) What would be the price of the bond today? (iv) What would be your return (%/year) if you sold the bond at this price? 1 4.10% 2.85% Years to Maturity 2 4.30% 3.25% 3 4.39% 3.65% 5 4.50% 8 4.65%Mf2. Suppose in Month 1 the yield on ten-year bonds issued by the government in a country was 1.8% (also the coupon rate). In the following Month 2, the yield was 2.3%. Predict the effect of these changes in yield on the price of the ten-year government bonds, assume a face value, 1000. You will need to calculate the duration, modified duration, convexity and clearly explain your results.1. Briefly explain the following: a. You want to sell your bond that has a par value of ₱100,000 plus a 5 percent annual coupon rate thatwill mature after one year. The prevailing interest rate is 8%. Will you be able to sell your bond for ₱100,000 or higher? Briefly explain your answer.b. Is it possible for a country to have a twin deficit (a budget deficit and trade deficit) at the same time? How will this affect the economy? Briefly explain the benefits and dangers of a twin deficit.c. Which is better for the receiving country, FDI or FPI? Briefly explain your answer.
- 19. The nation of Qatar just issued a perpetual bond. The bond will pay $1,000 in one year and that will grow at 1%/year forever. Because Qatar has more natural gas than any nation in the world, it is a very safe investment and the appropriate discount rate is 4%. Under these facts, what is the appropriate price for this perpetual bond? Choose the closest. a. $20,000 b. $25,000 c. $33,333 d. $50,3333. Assume the following information: Spot rate today of Swiss franc $.60 1-year forward rate as of today for Swiss franc $.63 Expected spot rate 1 year from now $.64 Rate on 1-year deposits denominated in Swiss francs 7% Rate on 1-year deposits denominated in U.S. dollars = 9% From the perspective of U.S. investors with $1,000,000, calculate the yield if he were to perform an interest arbitrage. = =Question 1 2.BT is considering investing in government bonds. The current price of a P100 bond with 10 years to maturity is P88.The bonds have a coupon rate of 6% and repay face value of P100 at the end of the 10 years.Calculate the yield to maturity. 3.Explain four comparative advantages of debt as a source of finance over equity.