A B C Year 1 $43 123 13 Year 2 $ 43 13 Year 3 $ 43 113 a. Calculate their durations if the interest rate is 7%. b. Suppose that you have an investment of $10.3 million in A. What combination of B and C w against interest rate changes? c. Now suppose that you have a $10.3 million investment in B. How would you hedge? Complete this question by entering your answers in the tabs below.
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- 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.Consider two securities that pay risk-free cash flows over the next two years and that have the current market prices shown here: Security Price Today Cash Flow in One Year Cash Flow in Two Years B1 $192 $200 0 B2 $176 0 $200 What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $200 in two years? What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $1600 in two years? Suppose a security with cash flows of $100 in one year and $200 in two years is trading for a price of $260. What arbitrage opportunity is available?17. Consider two securities that pay risk-free cash flows over the next two years and that have the current market prices shown here: Security Price Today ($) Cash Flow in One Year ($) Cash Flow in Two Years ($) B1 94 0 100 0 B2 85 100 a. What is the no-arbitrage price of a security that pays cash flows of $100 in one year and $100 in two years? b. What is the no-arbitrage price of a security that pays cash flows of $100 in one year and $500 in two years? c. Suppose a security with cash flows of $50 in one year and $100 in two years is trading for a price of $130. What arbitrage opportunity is available?
- Consider the following money market information being quoted: Which of the following statements is true? Particulars GBP Interest Rate THB Interest Rate Spot Rate 1-year Expected Spot Rate Bid Rate 6.100% 10.550% THB5.6601/GBP THB5.9037/GBP C. Ask Rate 6.125% 10.625% THB5.6622/GBP THB5.9961/GBP a. There is an arbitrage which can only be made by initially borrowing GBP and then investing in THB. b. More than one of the options in this question are correct. The THB is selling at a premium to the GBP in the future. O d. There is an arbitrage which can only be made by initially borrowing THB and then investing in GBP.uestion Consider three securities that will pay risk-free cash flows over the next three years and that have the current market prices shown here: This question: 10p Security Price Today ($) Cash Flow in Cash Flow in Cash Flow in Two Years ($) Three Years ($) Name One Year ($) B1 $92.42 100 B2 $84.32 100 B3 $382.92 500 Calculate the no-arbitrage price, or the price that eliminates any arbitrage opportunities, of a new security, B4, that pays risk-free cash flows of $500 in one year and $1,000 in three years. The current no-arbitrage price of Security B4 is: (round your answer to two decimal places) O Time tv 9 MacBook Air DD DII F10 F9 F8 888 F7 80 F6 F5 F4 F3 esc F2 F1 & * OCAssume you have the following asset and liability in your balance sheet Asset - Bond AModified Duration = 1.5 yearsValue = RM1 million Liability - Bond BModified Duration 2.6 yearsValue = RM2 million a. Calculate the duration gaps?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?
- Suppose you purchase a T-bills that is 125 days from maturity for $9,765. The T-bills has a face value of $10,000.a. Calculate the T-bills’s quoted discount rate. b. Calculate the T-bills’s annualized rate.c. Who are the major issuers of and investors in money market securities?Suppose the term structure of risk-free interest rates is as shown below: 5 yr 7 yr 10 yr 20 yr Term 1 уг 2 yr 3 yr 3.24 3.79 4.09 5.05 2.07 2.46 2.71 Rate (EAR %) a. Calculate the present value of an investment that pays $1,000 in two years and $3,000 in five years for certain. b. Calculate the present value of receiving $100 per year, with certainty, at the end of the next five years. To find the rates for the missing years in the table, linearly interpolate between the years for which you do know the rates. (For example, the rate in year 4 would be the average rate in year 3 and year 5.) c. Calculate the present value of receiving $1,800 per year, with certainty, for the next 20 years. Infer rates for the missing years using linear interpolation. (Hint: Use a spreadsheet.)Consider two securities that pay risk-free cash flows over the next two years and that have the current market prices shown here: (Click on the following icon in order to copy its contents into a spreadsheet.) Security B1 B2 Price Today $190 $176 Cash Flow in One Year $200 0 Cash Flow in Two Years 0 $200 a. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $200 in two years? b. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $1,800 in two years? c. Suppose a security with cash flows of $100 in one year and $200 in two years is trading for a price of $260. What arbitrage opportunity is available? ... a. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $200 in two years? The no-arbitrage price is $ (Round to the nearest dollar.)
- solve this practice problemThe value of any financial asset is the present ✓ value of the cash flows the asset is expected to produce. For a bond with fixed annual coupons, its value is equal to the present value of all its annual interest payments and its maturity value as shown in the equation below: Bond's value = VB: Int. Int. (1+ra)² (1+ra)² N + ·+...+ Int. M + (1+ra)* (1+ra) Int. M (1+ra) (1+ra)N + We could use the valuation equation shown above to solve for a bond's value; however, it is more efficient to use a financial calculator. Simply enter N as years to maturity, I/YR as the going annual interest rate, PMT as the annual coupon payment (calculated as the annual coupon interest rate times the face value of the bond), and FV as the stated maturity value. Once those inputs are entered in your financial calculator, you can solve for PV, the value of the bond. Remember that the signs for PMT and FV should be the same, so PV will have an opposite sign. Typically, you would enter PMT and FV as positive…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.