A bank has an outstanding bond issue with a face value of $ 1000 per bond and three years to maturity. Interest is payable annually. The bonds are privately held by a pension fund that wishes to sell them to another party. It estimates that, in the current market conditions, the bonds should provide nominal return of 14%. Calculate the price of the bond that should be realized on the sale?
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- A customer asks a bank if it would be willing to commit to making the customer a one-year loan at an interest rate of 6.5% two years from now. To compensate for the costs of making the loan, the bank needs to charge two percentage points more than the expected interest rate on a Treasury bond with the same maturity if it is to make a profit. The bank estimates the liquidity (term) premium for one-, two-, and three-year bond to be 0%, 0.5%, and 1%, respectively. According to the Treasury yield curve below, what interest rate the loan must charge in order for the bank to make a profit on the loan? Should the manager be willing to make the commitment? Choose the closest answer below. Spot rate 6% 5% 4% Term 1-year 2-year 3-year O 7%; Yes O 8%; No O 5%: Yes O 6%; Yes O 7%; NoA Bank offers both loans and deposits at a nominal interest rate of 4% that is continuously compounded A) What is the effective rate offered by the bank? B) The bank also offers a 3-year bond with face value £10000, redeemable at par, with 10% annual coupons. What is the final payment of that bond? C) Assuming there are no arbitrage opportunities, what is the price of the above bond?An insurance company is thinking about purchasing bonds A and B with zero coupons to cover some of its future liabilities. The redemption periods for these zero-coupon bonds are seven and twenty years, respectively.£11 million is due in 11 years, and £14 million is due in 16 years, according to the list of its liabilities.Determine bond B's value at an effective 5% annual interest rate so that Redington's theory of immunization's first two requirements are met. (correct answer=6.419) (using formulas, no tables)
- Pension funds pay lifetime annuities to recipients. If a firm will remain in business indefinitely, the pension obligation will resemble a perpetuity. Suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $1.9 million per year to beneficiaries. The yield to maturity on all bonds is 19.0%. Required: a. If the duration of 5-year-maturity bonds with coupon rates of 11.8% (paid annually) is four years and the duration of 20-year-maturity bonds with coupon rates of 7% (paid annually) is 11 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. b. What will be the par value of your holdings in the 20-year coupon bond? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. a. 5 year bond a. 20 year bond b. Par…Pension funds pay lifetime annuities to recipients. If a firm will remain in business indefinitely, the pension obligation will resemble a perpetuity. Suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $2.2 million per year to beneficiaries. The yield to maturity on all bonds is 14.4%. Required: a. If the duration of 5-year-maturity bonds with coupon rates of 10.5% (paid annually) is four years and the duration of 20-year-maturity bonds with coupon rates of 4% (paid annually) is 11 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. b. What will be the par value of your holdings in the 20-year coupon bond? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. Answer is complete but not entirely…Pension funds pay lifetime annuities to recipients. If a firm will remain in business indefinitely, the pension obligation will resemble a perpetuity. Suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $1.3 million per year to beneficiaries. The yield to maturity on all bonds is 14.0%. Required: a. If the duration of 5-year-maturity bonds with coupon rates of 10.0 % (paid annually) is four years and the duration of 20-year-maturity bonds with coupon rates of 5% (paid annually) is 11 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. b. What will be the par value of your holdings in the 20-year coupon bond? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. a. 5 year bond a. 20 year bond b. Par…
- A 10-year government bond has face value of OR 200 and a coupon rate of 6% paid semiannually. Assume that the interest rate is equal to 8% per year. What is the bond’s price? What is the reason for the difference in price on an annual and semiannually basis? Discuss the role of financial managers.NikulSuppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $31,950,000, with the promise to buy them back at a price of $32,000,000. a. Calculate the yield on the repo if it has a 5-day maturity. b. Calculate the yield on the repo if it has a 15-day maturity. (For all requirements, use 360 days in a year. Do not round intermediate calculations. Round your percentage answers to 5 decimal places. (e.g., 32.16161)) a. b. X Answer is complete but not entirely correct. Yield on the repo Yield on the repo 1.02857 % 0.34286 %
- Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $25,950,000, with the promise to buy them back at a price of $26,000,000. a. Calculate the yield on the repo if it has a 5-day maturity. b. Calculate the yield on the repo if it has a 15-day maturity. (For all requirements, use 360 days in a year. Do not round intermediate calculations. Round your percentage answers to 5 decimal places. (e.g., 32.16161)) Yield on the repo a. % b. Yield on the repoShow complete solution. A corporate bond (subject to default risk) matures in three years, pays one coupon per year, at rate 9% of a face value 1000, and trades at 960.The term structure for risk-free rates is flat at 7% (annual compounding). A bank offers an insurance against default, for a price of 200. This insurance covers both future coupons and the repayment of whole face value (for the sake of simplicity, we do not consider partial default). How much is the bond price?Pension funds pay lifetime annuities to recipients. If a firm remains in business indefinitely, the pension obligation will resemble a perpetuity. Suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $3.0 million per year to beneficiaries. The yield to maturity on all bonds is 20%. Required: a. If the duration of 5-year maturity bonds with coupon rates of 16% (paid annually) is 3.7 years and the duration of 20-year maturity bonds with coupon rates of 7% (paid annually) is 6.5 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation? (Do not round intermediate calculations. Enter your answers in millions rounded to 5 decimal places.) > Answer is complete but not entirely correct. Holdings 5-year bond 20-year bond $ 1.60000 million $ 22.20000 million b. What will be the par value of your holdings in the 20-year coupon bond? (Enter your answer in dollars not in…