Assume a bank has a $25 million mortgage bond risk position which it hedges in the Tre futures market. Approximately how many futures contracts would be needed for this he assumed mortgage bonds and Treasury bonds were perfectly correlated? 2500 5 250 25
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- Use the following zero-coupon bond prices to answer the next questions: Days to Maturity Zero-Coupon Bond Price 90 180 270 360 0.99009 0.97943 0.96525 0.95238 Suppose you are the counterparty for a lender who enters into an FRA to hedge the lending rate on $10m for a 90-day loan commencing on day 270. What positions in zero-coupon bonds would you use to hedge the risk on the FRA?You are given the following prices and cash flows associated with bonds. CF stands for cash flow. Bond Price Today CF Year 1 CF Year 2 CF Year 3 A 105.185 10 10 110 B 90.371 100 0 0 C 91.784 5 105 0 D X 15 15 115 What is the current price of Bond D as per the no-arbitrage principle? In other words, what is the value of X?[Related to the Apply the Concept: "How to Follow the Bond Market: Reading the Bond Tables ] Consider the following information on two U.S. Treasury bonds Maturity July 31, 2024 Coupon 1.625 July 31, 2024 2.000 Briefly explain how two securities that have the same yield to maturity can have different asked prices OA. Bond A has a low coupon rate and a lower price. Bond B has a higher coupon rate and a higher price. Because of the bond price formula, if coupon rates rise, the yield will fall, which requires prices to fall to keep the yield the same. If both bonds have the same risk profile, the law of one price brings bond yields to the same level Bond A Bond B Bid 101.8984 103.4141 Asked 101.9141 103.4297 Chg 0:5000 0.5000 Asked yield 1.151 1.151 OB. Bond A has a low coupon rate and a lower price. Bond B has a higher coupon rate and a higher price, Because of the bond price formula, if coupon rates fall, the yield will rise, which requires prices to rise to keep the yield the same. If…
- round the following information: Government bonds: \table [[Maturity, Yield], [1,1% round the following information: Government bonds: Maturity Yield 1 1% 2 2.2% 3 3% 4 5% BB Bonds: Maturity Yield 1 6% 2 8% 3 11% 4 17% Draw the credit spread curve. If you know that the market is assuming a constant recovery rate for all maturities, What must be their assumption for the probability of default?The table below gives you some information with respect to bonds. Calculate the yield-to-maturity for all these bonds. Assume you hold till maturity what would you pick? Company Settlement Price Maturity Coupon YTM Morgan Stanley 2/10/2023 100.85 2/25/2023 3.75 ? Fidelity 2/10/2023 99.839 3/01/2023 0.375 ? Caterpillar 2/10/2023 100.00 3/01/2023 2.625 ? NextEra Energy 2/10/2023 99.889 3/01/2023 0.650 ? BNP Paribas 2/10/2023 100.08 3/03/2023 3.250 ?A manager wishes to hedge a bond with a par value of $20 million by selling Treasury bond futures, Suppose that the standard deviation for the bond to be hedged and the hedging instrument are 0.09 and 0.10, respectively and the correlation between the two is 0.85. a. What is the hedge ratio? b. How many Treasury bond futures contracts should be sold to hedge the bond if Treasuries are trading at $100,000? Edit View Insert Format Tools Table 12pt v Paragraph v BIUA
- 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 В1 $192 $200 B2 $176 $200 a. What is the no-arbitrage price of a security that pays cash flows of $200 in one year $200 in two years? b. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $1600 in two years? c. Suppose a security with cash flows of $100 in one year and $200 in two years is trading for price of $260. What arbitrage opportunity is available? and aConsider 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?The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates. Based on the pure expectations theory, is the following statement true or false? The pure expectations theory assumes that investors do not consider long-term bonds to be riskier than short-term bonds. True False The yield on a one-year Treasury security is 4.6900%, and the two-year Treasury security has a 6.3315% yield. Assuming that the pure expectations theory is correct, what is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) 10.1585% 7.9988% 6.799% 9.1186% Recall that on a one-year Treasury security the yield is 4.6900% and 6.3315% on a two-year Treasury security. Suppose the one-year security does not have a maturity risk premium, but the two-year security does and it is 0.5%. What is…
- a. The historical yield spread between AAA bonds and Treasury bonds widened dramatically during the financial crisis in 2008. If you believed that the spread would soon return to more typical historical levels, what should you have done?b. This would be an example of what sort of bond swap?You are given the following data: Real Risk-Free Rate 4% Constant inflation premium 7% Maturity risk premium 1% Default risk premium for AAA bonds 3% Liquidity premium for long term T bonds 2% Assume that a highly liquid market does not exist for long term bonds, and the expected rate of inflation is constant. Given these conditions: a. nominal risk-free rate for T bills is? b. the rate of the long term treasury bonds is?FINA2... moodle1.du.edu.om T riay question Suppose you plan to invest part of your savings in bonds issued by Salalah Food Industries. Therefore, you must calculate the current yield on these bonds before making the decision to invest in them. The information below has been provided to assist you in calculating the current yield on these bonds. market price 1892 OMR, annual coupon rate 0.17 face value 2,500 OMR maturity 14 years. Select one: a. 0.1700 b. 0.1287 C. All the given answers in this question are wrong d. 0.2246 II
