A Bank offers both loans and deposits at a nominal interest rate of 5% that is continuously compounded.(a)What is the effective rate offered by the bank? Give your answer to 3 digits. Do not write the % sign. For example, if your answer is 4.15% thenwrite 4.15. Answer:(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 thatbond? Do not enter the £ sign. Answer:(C) Tsign. Answer:Assuming there are no arbitrage opportunities, what is the price of the above bond? Give your answer to five valid digits. Do not enter the £

In case of continuous compounding, Effective annual rate of interest = [e^(r) -1] x 100wheree =…

Answered: A Bank offers both loans and deposits…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Acacia Bank expects the euro to depreciate against the dollar and plans to take a short position in euros and a long position in dollars. Assume the following1. Interest rate on borrowed euros is 5 percent annualized2. Interest rate on dollars loaned out is 6 percent annualized3. Spot rate is 0.90 per dollar4. Expected spot rate in ten days is 0.95 per dollar5. Acacia Bank can borrow 10 millionDescribe the steps Acacia should take to profit from shorting euros and going long on dollars, show your calculations.
One bank offers to loan you money at an interest rate of 12% compounded quarterly, and another bank offers to loan you money at 11.8% compounded continuously. Which loan would you prefer, and why?
The bank offers you the following three options to pay back the loan from the previous question: I: To pay the interest of 6.00% annually II: To pay an interest of 0.49% monthly III: To pay an interest of 1.46% quarterly Which of these three options would be most beneficial for you? O All three options would be equally beneficial Option II ○ Option III Option I O Option II and Option III would be equally beneficial
A financial institution uses a loan base rate of 4.35% and sets the credit risk premium at 6.68%. The institution charges a 1.5% loan origination fee and imposes 3.22 % compensating balances. The required reserves for this institution are 10%. Additionally suppose your institution specifies the following linear probability model to estimate the probability of default: PD = Bo - Bi Wealth-B2Credit Score + B3 Number of Bankruptcics Bo = 10, 109.5 %3D B1 = 0.10 %3D B2 = 0.20 %3D B3 = 0.60 %3D Use the information above to answer the question. What is the gross rate of return on the loan? O 9.31% O 11.03% O 12.53% O 12.90%
Use Given-Required-Solution in answering problems. Provide cash flow diagram. Write answer on the space provided below. Solution shall be uploaded at the end of the quiz. A bond with a face value of P1,500,000 is sold at P1,400,000. If the bond matures in 5 years and pays 15 percent per annum, how much should the annual earning interest be? Round off to four decimal places in the final answer/s.
Banca Monte dei Paschi di Siena has 300 depositors. Each depositor deposits $150 into the bank at time t=0. The bank promises each depositor 8% interest rate. Each depositor can either withdraw their money at t=1 or t=2. The bank uses the deposits to issue 2-year simple loans. If the bank faces a demand for withdrawal at t=1, it is able to sell its 2-year simple loans at the original loan value. If 200 depositors withdraw at t=1, what is the amount of payment (in $) each depositor who withdraws at t=2 receives? Round your answer to at least 2 decimal places.
A commercial bank is planning to offer Luna a loan in the amount of $15,000 and the bank figures that Luna will repay the loan in full with probability 0.79 and default otherwise. Also, Luna has asked for an interest rate of 12%. In order for the bank to be able to offer this rate, what is the collateral amount that Luna must offer the bank in the event of default? $8,177.5 $8,228.6 $8,366.9 $8,401.1
A Bank offers both loans and deposits at a nominal interest rate of 4% that is continuously compounded. What is the effective rate offered by the bank? 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? Assuming there are no arbitrage opportunities, what is the price of the above bond? Give your answer to five valid digits.
The bank made a 3-year loan 7% discount rate, with no coupons and a par value of $1,000. If immediately after the loan was made, because of higher inflation expectations, the discount rate increased to 9%. What is the effect of the interest rate change on the value of the loan? (a) Declines by 1.94% (b) Increases by 5.4% (c) Increases by 2.0% (d) Declines by 5.4%
Please answer number 1 and 2.
You come across two banks offering different compounding interest rates. Public Bank offers 12 percent compounded semi-annually while Maybank offers 11.8 percent compounded monthly. Which bank should you deposit in? Show all relevant workings
Find the return on a loan under the following conditions. The base rate on the loan is 5%, the risk premium applied is 4%. The bank charges a 0.5% origination fee, imposes a 5% compensating balance and is subject to a 10% reserve requirement.

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