What is the present value of a security that will pay $13,000 in 20 years if securities of equal risk pay 9% annually? Do not round intermediate calculations. Round your answer to the nearest cent.

Interest rates on 4-year Treasury securities are currently 5.4%, while 6-year Treasury securities yield 7.85%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places.

Is there an arbitrage opportunity in this market? Explain.

An insurance company must make payments to a customer of $10 million in one year and $5 million in five years. The yield curve is flat at 10%. Required: a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. What must be the face value and market value of that zero-coupon bond? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. a. Maturity of zero coupon bond b. Face value b. Market value years million million

You buy a zero-coupon bond with a face value of $16,000 that matures in 10 years for $7,000.  What is your annual compound rate of return?

Recall that on a one-year Treasury security the yield is 5.6100% and 6.7320% on a two-year Treasury security. Suppose the one-year security does not have a maturity risk premium, but the two-year security does and it is 0.15%. What is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) a 9.6049%   b 6.4285%   c 8.6217%   d 7.5629%     Suppose the yield on a two-year Treasury security is 5.83%, and the yield on a five-year Treasury security is 6.20%. Assuming that the pure expectations theory is correct, what is the market’s estimate of the three-year Treasury rate two years from now? (Note: Do not round your intermediate calculations.) a 5.46%   b 6.45%   c 6.53%   d 6.61%

The market price of a security can be modelled by assuming that it will either increase by 25% or decrease by 15% each month, independently of price movement in other months. No dividends are payable in the next two months. The continuously compounded monthly risk-free rate of interest is 1%. The current market price of the security is 127. a.) Use the binomial model to calculate the value of a two-month European put option on the security with strike price of 125. b.) Calculate the value of a two-months American put option on the same security with the same strike price. c.) Calculate the value of a two-months American call option on the same security with the same strike price.

Recall that on a one-year Treasury security the yield is 4.0000% and 5.4000% on a two-year Treasury security. Suppose the one-year security does not have a maturity risk premium, but the two-year security does and it is 0.4%. What is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) 6.8509% 6.0096% 7.6322% 5.1082%

What is the present value of a security that will pay $17,000 in 20 years if securities of equal risk pay 8% annually? Do not round intermediate calculations. Round your answer to the nearest cent.

What is the present value of a security that will pay $10,000 in 20 years if securities of equal risk pay 5% annually? Do not round intermediate calculations. Round your answer to the nearest cent.