a) Can you make money off of this ???? b) What are the effects of covered interest arbitrage? c) Calculation of % premium or discount. Premium or discount size should be equal to but opposite in sign to interest rate difference. d) [(Fwd-Spot)/Spot] X 12/n X 100 =% premium or discount Use this formula with direct rates (units of local currency per one unit of foreign) Indirect rates are units of foreign currency per one unit of local currency. (be Careful this is a common mistake on exams)

a) Can you make money off of this ???? b) What are the effects of covered interest arbitrage? c) Calculation of % premium or discount. Premium or discount size should be equal to but opposite in sign to interest rate difference. d) [(Fwd-Spot)/Spot] X 12/n X 100 =% premium or discount Use this formula with direct rates (units of local currency per one unit of foreign) Indirect rates are units of foreign currency per one unit of local currency. (be Careful this is a common mistake on exams)

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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Given interest rates: o Deposit rate: 0.40% in € & 1.0% in £ o Borrow rate: 0.50% in € & 1.1% in £ • Investment Plan: o You use your own funds: $100 o You can borrow additional funds either €250 or £200 • Spot rates: o EUR/USD = 1.2 & GBP/USD = 1.5 • Expectation: O USD is expected to depreciate by 2.5% against EUR in 1 month. o USD is expected to appreciate by 1.5% against GBP in 1 month. Cross rates a. GBP (appreciates/depreciates) against EUR by b. EUR (appreciates/depreciates) against GBP by
4. If you know the simple interest due on a P10 000 loan, explain how you can use that figure to calculate the simple interest due on a P50 000 loan for the same time period and the same interest rate. 5. If the principal of a loan is doubled but the time period and interest rate remain the same, how many times as large is the simple interest due on the loan? 6. If the principal of a loan is tripled but the time period and interest rate remain the same, how many times as large is the simple interest due on the loan?
D3) Finance The Assured Independence Bank has offered to lend you $200,000 on a line of credit. Interest is charged at 11% and there is a commitment fee of $1,500. If the payment terms are 2/10 n45 what is the cost of this loan? Express the cost of this option as a simple interest rate (%+2 decimal places)
If the proceeds of a loan of P12,450 will be paid with P12,840 at the end of 1 year and 9 months. What is the simple interest discount rate? A. 1.75% В. 1.74% С. 1.73% Answer:
Mf4. You've worked out a line of credit arrangement that allows you to borrow up to $80million at any time. The interest rate is0.61 percent per month. In addition, 4 percent of the amount that you borrow must be deposited in a non-interest-bearing account. Assume that your bank uses compound interest on its line of credit loans. Required: (a)What is the effective annual interest rate on this lending arrangement? (Do not round your intermediate calculations.) (b)Suppose you need $16 million today and you repay it in 6 months. How much interest will you pay? (Do not round your intermediate calculations.)
Given the following information which financing method has the lowest interest cost? How much interest savings do you make by using the financing method with the lowest interest cost? Loan Bankers' Acceptance Amount R2 500 000 R2 500 000 180 days 180 days Banker's Acceptance rate + 2.5% Tem Rate: Prime + 2.5% 8%+2.5% 6.9%+2.5%
Assume you have the following asset and liability in your Balance Sheet: Asset - Bond A Modified Duration = 2.6 years Value = RM1.5 million Liability - Bond B Modified Duration = 3.1 years Value = RM1.0 million a. Calculate the duration gap. b. What is the expected change in Net Worth if interest increases by 1%? Assume previous interest is 10% c. What should or could you to achieve immunised balance sheet? Note: Please show all workings.
18 .Use the following amortization chart: Selling price of home Down payment Principal (loan) Rate of interest Years Payment per $1,000 Monthly mortgage payment $ 90,000 $ 5,000 $ 85,000 5 1/2% 30 $ 5.67789 $ 482.62 What is the total cost of interest? Note: Do not round intermediate calculations. Round your answer to the nearest cent. Total cost of interest:???
3. Suppose you are considering a PLAM with the following characteristics: Mortgage Amount = $175,000 30-Year Term Monthly Payments Current Real Rate = 5.50 percent Expected Inflation Rates: EOY1 = 3%, EOY2 = -2%, EOY3 thru EOY30 = 0% Annual Payment Adjustments A. What is the APR of this loan? Answer: B. What is the effective cost if the loan is repaid at the end of year 2? Answer: C. Suppose that, instead of repaying the loan, you continue to make the payments and your monthly payment in year 4 is 1,043.09. What was the inflation rate for year 3? Answer:
Assume you have the following asset and liability in your Balance Sheet: Asset - Bond A Modified Duration = 2.6 years Value = RM1.5 million Liability - Bond B Modified Duration = 3.1 years Value = RM1.0 million a. Calculate the duration gap. b. What is the expected change in Net Worth if interest increases by 1%? c. What should or could you to achieve immunised balance sheet? Note: Please show all workings.
You borrow money on a self liquidating installment loan (equal payments at the end of each year, each payment is part principal part interest) Loan amount Interest Rate $632,000 15.5% Life 49 years Date of Loan January 1, 2021 Use the installment method - not straight line Do NOT round any interrmediate numbers. Do NOT turn this into a monthly problem. Do NOT put in minus signs, answer all positive numbers.
Q1. A $200,000 loan amortized over 14 years at an interest rate of 10% per year requires payments of $21,215.85 to completely remove the loan when interest is charged on the unrecovered balance of the principal. If interest is charged on the original principal instead of the unrecovered balance, what is the loan balance after 14 years provided the same $21,215.85 payments are made each year? The loan balance is $ .

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