Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- OLL Ltd has just issued a perpetual (that is, non-maturing) financial security that is expected to pay an annual coupon of $120 next year. This coupon will then decline at a rate of 2% per annum forever. If the interest rate on this security is 8% p.a., its price today should be closest to: Group of answer choices $1,200. $1,500. $2,000. $6,000.arrow_forwardThe real risk-free rate of interest is 1.57% at the beginning of 2021. Inflation is expected to be 2% in 2021, jump to 4.00% in 2022, and run at 3% in 2023. A maturity risk premium is expected to be 0.37% per year to maturity. A liquidity premium on corporate bonds issued by small companies will continue to be 0.50%, regardless of their maturities. What should the interest rate on a 3-year Treasury security be at the beginning of 2021? Group of answer choices 5.85% 5.31% 5.54% 6.18% 5.68%arrow_forwardSuppose that the current rates on 60 and 120 day GICs are 5.50% and 5.75%, respectively. An investor is weighing the alternatives of purchasing a 120 day GIC versus purchasing a 60 day GIC and then reinvesting its maturity value in a second 60 day GIC.What would the interest rate on 60 day GICs have to be 60 days from now for the investor to end up in the same financial position with either alternative?arrow_forward
- 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?arrow_forward4. Let R be the one-year LIBOR rate with annual compounding that will be determined in 6 years from now. Assume the forward interest rate volatility for the corresponding period is 20% per year. The risk-free rates with annual compounding are currently 5% for all maturities. a. Calculate the price of a financial derivative that pays 1000R € in 6 years from now. b. Calculate the price of a financial derivative that pays 1000R € in 7 years from now.arrow_forwardToday is the 10th January 2023. You want to buy a Floating Rate Note (FRN) that matures on the 10th July 2027 and pays an annual coupon equal to LIBOR. Compute the fair price of the note. Use the data in Table 1. The LIBOR rate at selected dates are showed in Table 3. Please show your calculations. Discuss your result.arrow_forward
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