PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 26, Problem 15PS
Summary Introduction
To compute: The convenience yield.
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A commercial bill with a face value of $100,000 and 270 days to maturity is purchased with a yield to maturity of 4.65 per cent per annum. After the bill has been held for 110 days it is sold at a yield of 4.5 per cent per annum. What rate of return was earned by the original holder of the bill; that is, what is the holding period yield? Show your working.
A short forward contract on an investment asset that yields 7.2% and was negotiated some time ago will expire in 10 months and has a delivery price of $68. The current spot price of the commodity is $48. The risk-free interest rate (with continuous compounding) is 3.5%. What is the value of the short forward contract
Yield Calculation i. Assume that newly issued three -
month (90 days) T - bills with a par value of $1,000 sells
at discount rate of 3%. a) What is the price of this three
-month T-bills? b) What is the 90-day holding period
return of this T - bill? c) What is the annualized yield of
this three-month T - bill? ii. Assume that an investor
purchased a three-month commercial paper with a
face value of $1,000,000 for $940,000. This investor
held the commercial paper for 60 days before he sold it
at a price of $980,000. What is the annualized yield of
this investment? iii. Assume that Canada is in a strong
economic condition, and you expect the economy to
continuously grow over the next six months. Given your
expectations and your calculation for the yield of the
three-month T-bills and the three-month commercial
paper (note: annualized yield for the three-month
commercial paper if the investor chose to hold it till
maturity is different from the one you calculate in part ii
), would you…
Chapter 26 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 26 - Vocabulary check Define the following terms: a....Ch. 26 - Prob. 2PSCh. 26 - Catastrophe bonds On some catastrophe bonds,...Ch. 26 - Futures and options A gold-mining firm is...Ch. 26 - Prob. 5PSCh. 26 - Prob. 6PSCh. 26 - Futures contracts List some of the commodity...Ch. 26 - Prob. 8PSCh. 26 - Futures prices Calculate the value of a six-month...Ch. 26 - Futures prices In December 2017, six-month futures...
Ch. 26 - Prob. 11PSCh. 26 - Prob. 13PSCh. 26 - Prob. 15PSCh. 26 - Prob. 16PSCh. 26 - Prob. 17PSCh. 26 - Convenience yield In March 2018, six-month bitcoin...Ch. 26 - Prob. 19PSCh. 26 - Prob. 20PSCh. 26 - Total return swaps Is a total return swap on a...Ch. 26 - Prob. 22PSCh. 26 - Prob. 23PSCh. 26 - Hedging What is meant by delta () in the context...Ch. 26 - Hedging You own a 1 million portfolio of aerospace...Ch. 26 - Prob. 26PSCh. 26 - Prob. 27PSCh. 26 - Prob. 28PSCh. 26 - Hedging Price changes of two gold-mining stocks...Ch. 26 - Prob. 30PSCh. 26 - Prob. 31PSCh. 26 - Prob. 32PSCh. 26 - Prob. 33PSCh. 26 - You are a vice president of Rensselaer Advisers...
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- The spot price of an investment asset is $50. The asset pays sure income of $5 in 6 months and the annual effective risk-free rate is 3%. What is the three-year forward price? a. $46.35 b. $54.63 c. $$49.25 d. $60.02 e. None of the abovearrow_forwardA Treasury STRIP is purchased for $942 to mature at $1,000 in 3 years. Assuming annual compounding, what is its yield-to-maturity? Group of answer choices 2.0% 2.5% 3.0% 3.5% 4.0%arrow_forward6. The price of a 270-day commercial paper is $7,937. If the annualized yield is 5.30%, what will the paper pay at maturity? A. $8,358 B. $7,640 C. $7,538 D. $8,246arrow_forward
- Consider a forward contract that expires in 9 months. The underlying asset is worth $250 and the forward price is $285. Suppose we hold the long position in the forward contract. The risk free rate is 8 percent. The appropriate forward price should be: a. $270.00 b. $35.00 c. $285.00 d. $264.85arrow_forwardSuppose the price of copper is $4.10 per ounce. Copper purchased as an investment must be stored until it is sold. The storage cost must be paid monthly in advance and is $0.10 per ounce per month. Assume the risk-free interest rate is 3.5% compounded continuously. Find the price of a forward contract for an ounce of copper due to be delivered to the buyer in 6 months.arrow_forwardGiven: the price of equipment purchased (present value) is 52,000. interest is placed at 7%. expected life of equipment is 20 years. the electricity is 45 cents per kWh. for interest rate of 7% and number of period of 20 years, the (p/A, i , N) factor is 10.594. the annual kWh savings : 6419.40 kWh Find :the present net value and the IRR value of this scenario. note: please let me know you need any extra informationarrow_forward
- Suppose that a four-year FRN pays three- month Libor plus 1% on a quarterly basis. Currently, three-month Libor is 2%. The price of the floater is 98 per 100 of par value. What is discount margin?arrow_forwardCalculate yields on 3-month T-bills for each of the prices in the following table and enter your the T-bills have a maturity value (M) of $1,000. (Note: Be sure to use a negative sign if the Price (PB) of a 3-Month T-Bill with 90 Days Left to Maturity 1,005.00 1,000.00 995.00 990.00 987.50 Yield 0% 2% % 00 Its rounded to the rest percent. Assume that d is negative. Based on the data from the previous table, use the black points (cross symbol) to plot the relationship between T-bill prices and their yields on the following graph. Be sure to plot from left to right. Line segments will automatically connect the points.arrow_forwardKk201. An asset produces $150 in two years, and $250 in four years, and the current price has been calculated toreflect a rate of return of 9% annually. Using the definition that convexity = second derivative of pricedivided by price, find the convexity of this asset evaluated at the annual yield rate of 9%.arrow_forward
- A short forward contract on a commodity that was negotiated some time ago will expire in 9 months and has a delivery price of $58. The current spot price of the commodity is $58. The risk-free interest rate (with continuous compounding) is 4.1%. What is the value of the short forward contract?arrow_forwardThe tag price of a certain commodity is payable in 100 days but if paid in 30 days there will be a 3% discount. Find the annual rate of simple interest. 12.24% 15.91% O 13.91% O 27.07%arrow_forwardA commercial bill with a face value of P100 000 has a current price of P97 711. This bill has 95 days to maturity what is its yield? (answer is in percentage without space, e.g. 15%) * Your answerarrow_forward
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