A company obtains a $1,000,000 variable rate loan on January 1, 2021, at a 2.1% interest rate. The loan is renewable every 3 months, and the interest rate is reset at each renewal. The company hedges against rising interest rates by taking a short futures position in $1,000,000 of 3-month Treasury bills at 99. There is no margin deposit, and the hedge qualifies as a fair value hedge of a firm liability commitment. At the end of 3 months, the Treasury bills sell for 98.2 and the loan renews at 2.9%. The company closes the futures contract and renews the loan. All income effects of the loan and the futures are reported in interest expense. At what amount will interest expense be reported for the new loan? Select one: A. $29,000 B. $ 9,250 C. $ 7,250 D. $ 5,250 Please Show Work

A company obtains a $1,000,000 variable rate loan on January 1, 2021, at a 2.1% interest rate. The loan is renewable every 3 months, and the interest rate is reset at each renewal. The company hedges against rising interest rates by taking a short futures position in $1,000,000 of 3-month Treasury bills at 99. There is no margin deposit, and the hedge qualifies as a fair value hedge of a firm liability commitment. At the end of 3 months, the Treasury bills sell for 98.2 and the loan renews at 2.9%. The company closes the futures contract and renews the loan. All income effects of the loan and the futures are reported in interest expense. At what amount will interest expense be reported for the new loan? Select one: A. $29,000 B. $ 9,250 C. $ 7,250 D. $ 5,250 Please Show Work

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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A bank is considering a debt-for-equity swap to slavage a $5 million loan that is in default. They expect to recover $2.7 million after liquidation ane legal fees. A turnaround expert has recommended the following cassh flow analysis if the bank chooses the debt-for-equirt swap. Initial Investment $5,000,000 in year 0 Expected cash flows after turnaround $1,750,000 in years 2-6 Sale of Equity (Exit) $3,500,000 in year 6 Equity ownership 70% Cost of capital 12% Should they engage in the debt-for-equity swap? A Yes, they should engage in the debt-for-equity swap B No, they should not because the NPV after the turnaround is greater than the liquidation value C Yes, they should engage in the debt-for-equity swap only if the cost of capital is 10% D No, they should not engage in the…
The company expects to invest approximately $1 million in three months in corporate bonds. The current rate of interest is 5.10%. To hedge the position, the company wishes to use 3 year Treasury bond futures contracts trading at 9800. Calculate the profit or loss from the position in futures market if in 3 months the contracts are trading at 91.900. a. $168334.11 O b. $-16833.41 c. $-170862.48 O d. $392716.91 O e. $-1708624.84
On 1 July 2023 Tamasek Ltd issues convertible notes with a face value of $10 million. The convertible notes have a 20-year term and mature on 30 June 2043. Interest is payable semi-annually in arrears, i.e. on 31 December and 30 June each year, and the coupon rate of interest is 7.5% p.a., At around the same point in time, companies with a similar credit rating issue debt securities without a conversion option with a coupon rate of 10% p.a., payable semi-annually. Required: Determine the debt and equity components of the convertible notes issued using the residual valuation method. Prepare the entries of Tamasek Ltd to account for the convertible notes over the period 1 July 2023 to 30 June 2025.
Similar to the mortgage pass-through security (PT), a competing bond has a par value of $100,000, a 4% coupon paid monthly, and a maturity of 258 months. Like most bonds, the payments on this bond are interest only. The current market rate for similar bonds is 3.5%, and prepayments on the mortgage pass through currently equal $100 per month. Assume rates immediately drop to 3%, and prepayments increase to $150 on the mortgage pass through as a result. What is the price of the bond today? Multiple Choice $87,347 $119,766 $115,830 O $100.017
Suppose 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 %
(c) BingBing Co has borrowed a £25 million money market loan, where the interest rate is LIBOR +300 basis points. It is currently 15th May 20X0 and LIBOR is 2.5%. The interest rate is due to be reset for the following 3 months on the 1st July 20X0 (i.e. LIBOR will be reset). The company wishes to hedge its exposure using short term interest rate futures contracts (STIRS). Assume the actual futures price on the 15th May 20X0 is 97. Calculate and discuss the outcome of the hedge if basis is 0.2 and LIBOR is 3% on the 1st July 20X0. The discussion should include basis risk.
The time from acceptance to maturity on a $1,000,000 banker's acceptance is 120 days. The importer's bank's acceptance commission is 1.75 percent and the market rate for 120-day B/As is 5.75 percent. What amount will the exporter receive if he holds the B/A until maturity? If he discounts the B/A with the importer's bank? Also determine the bond equivalent yield the importer's bank will earn from discounting the B/A with the exporter. If the exporter's opportunity cost of capital is 11 percent, should he discount the B/A or hold it to maturity? (Do not round intermediate calculations. Round "Maturity value" to 2 decimal places. Round "Bond equivalent yield" as a percent rounded to 2 decimal places.) Amount the exporter will receive at maturity Amount the exporter will receive if discounted Bond equivalent yield Should he discount the B/A or hold it to maturity? Discount the B/A %
Ignore Sammy. Another derivatives trader, John, took a long position in IRU9 on 04/07/2019 and held it until maturity. When the IRU9 matured in mid-September 2019, John closed his derivative long position and bought the 90-day Bank Bill at the 1% spot rate. What net rate of interest did he earn on his investment? 0.80% 1.00% 2.08% 1.08%
Today is January 1. The forward price for contracts maturing on April 1 is $104.4 and on October 1 is $111.6. On April 1, the price of a zero-coupon bond maturing on October 1 is $0.975. Assuming that the underlying interest rate is a continuously compounded interest rate and will not change, the amount of profit that you can make on October 1 by trading one contract each of the near and distant maturity forwards and other securities is: [round to two decimal places]
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Crazy Racoon Fur Trading Company issued a 20-year bond on May 15, 2018 with a 6.00% coupon. The bond pays interest semi-annually (5/15 and 11/15) with no special covenants (puts, calls, etc.). The bond will pay off at par (100.00%) or face value at maturity. You decide to purchase the bond and the trade is going to settle on August 30, 2020. On that date.... a. What is the price of the bond if the yield to maturity is 6.00%? b. What is the price of the bond if the yield to maturity increases to 7.00%? c. What is the price of the bond if the yield to maturity falls to 5.00%? Settlement date 08/30/20 Maturity date 05/15/22 Annual coupon rate 6.000% Yield to maturity 6.000% Redemption value as % of par valu 100.00 Number of coupons per year 2 BOND PRICE CALCULATOR $1,000.00 $1,000.00 CORRECT! $981.19 $962.89
Suppose a bank enters a repurchase agreement in which it agrees to sell Treasury securities to a correspondent bank at a price of $9999827 with the promise to buy them back at a price of $10000090. Calculate the yield on the repo if it has a 5-day maturity.

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