Blake Young is a derivative investment manager at Yankee Bank based in New York City. He manages a portfolio of fixed income assets and interest rate futures. He currently has a short position in a futures contract on GILTS, the U.K. equivalent to U.S. Treasury securities. As the delivery month is approaching, Young's manager has to choose the cheapest-to-deliver bond from the four available bonds. If the last settlement price is 93-08, which of the following bond is the cheapest-to-deliver? A B Bond A Bond B Bond C Bond A B C D Quoted Bond Price Conversion Factor USD 102 USD 103 USD 103 USD 104.50 1.018 1.071 1.089 1.062

Blake Young is a derivative investment manager at Yankee Bank based in New York City. He manages a portfolio of fixed income assets and interest rate futures. He currently has a short position in a futures contract on GILTS, the U.K. equivalent to U.S. Treasury securities. As the delivery month is approaching, Young's manager has to choose the cheapest-to-deliver bond from the four available bonds. If the last settlement price is 93-08, which of the following bond is the cheapest-to-deliver? A B Bond A Bond B Bond C Bond A B C D Quoted Bond Price Conversion Factor USD 102 USD 103 USD 103 USD 104.50 1.018 1.071 1.089 1.062

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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Similar questions

The ABC corporation issues a 4% coupon bond that matures on June 30, 2032. You are talking to the broker (trade date) about the bond on Feb. 28th, 2022. The broker quotes you a yield of 4.25%. Your first calculation produces a price of 97.9001, but the broker points out (she probably would give up on the trade at this point, but let’s assume she takes pity on you) that the coupons “step-up” after one year to 4.50% and remain at that level to maturity. Compute the amount of money the broker is expecting you to send her to pay for a $1mm face value bond. Explain why the 4% coupon bond is selling above par.
Suppose that for a Treasury bond futures contract, the cheapest-to-deliver bond is a 4% coupon bond with a quoted price of 114.50 and conversion factor of 1.3150. The futures contract matures in six months and the next coupon will be paid in six months. There is no accrued interest. The six-month risk-free interest rate is 5%. What is the value of the Treasury bond futures contract?
You are an exporter in possession of Banker’s Acceptance (B/A). You are considering holding the B/A until maturity or selling it in the Money Market (MM). If the face amount of the B/A is 10,000,000 USD, the acceptance commission is 2%, and the competitive MM rate for 90-day B/As is 5% What bond equivalent yield would make you indifferent between the MM and holding the B/A until maturity? Note: for B/A calculations you can assume a banker’s year (360 days), for bond calculations the convention is to use the actual number of days (365). Show and explain any intermediary calculations. Also interpret and explain your conclusion. I want the interpretation please.
Kris Corporation has the option to sell its investment in Joshua bonds at P4,500,000. It can exercise the option every third Wednesday of the next three months. The contract is a/an A.)European call option B.)American put option c.)Asian call option D.)Bermuda put option
Gronseth Drywall Systems, Inc., is in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the firm that different maturities will carry different coupon rates and sell at different prices. The firm must choose among several alternatives. In each case, the bonds will have a $1,000 par value and flotation costs will be $30 per bond. Calculate the before-tax cost of financing with the following alternative. coupon rate 9% time to maturity 16 years premium or discount $250
Andrew Industries is contemplating issuing a 30-vear bond with a coupon rate of 7.13% (annual coupon payments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard & Poor's. However, due to recent financial difficulties at the company, Standard & Poor's is warning that it may downgrade Andrew Industries' bonds to BBB. Yields on A-rated, long-term bonds are currently 6.49%, and yields on BBB-rated bonds are 6.87%. a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? b. What will be the price of the bond if it is downgraded? a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? If Andrew maintains the A rating for the bond issue, the price of the bond is S. (Round to the nearest cent.) b. What will be the price of the bond if it is downgraded? If it is downgraded, the new bond's price will be $. (Round to the nearest cent.)
Airborne Airlines Inc. has a $1,000 par value bond outstanding with 20 years to maturity. The bond carries an annual interest payment of $100 and is currently selling for $900. Airborne is in a 25 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. Yield on new issue :
you bought a 30-year bonds many years ago. The bond has par value of $ 1,000 and coupon rate of 12%, paid semi-annually. The current price of the bond is $1,137.99 and the yield to maturity is 10%. How many years ago did yoy buy the bond Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure
Mr. Norman and Mr. Foster are both investors looking to buy financial assets. Mr. Norman prefers assets with the lowest prices while Mr. Foster prefers assets on the financial market with higher prices. Each of them currently has GHC 1,000 to invest and needs your assistance to know which asset to buy to suit their preference. The following information provides details of investment options. a. Asset A is a bond with a coupon rate of 10% and pays semi- annual coupons. The par value is GHC 1,000, and the bond has 5 years to maturity. The yield to maturity is 11%. b. Asset B is a stock whose dividend is expected to increase by 20% in one year and by 15% in two years. After that, dividends will increase at a rate of 5% per year indefinitely. The last dividend was GHC 100 and the required return is 20%. Which asset will Mr. Norman and Mr. Foster invest in? In the 2020 accounting year, investors made a number observations in terms of certain decisions some corporations were taking: (1) The…
Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below par value. He has his eye on a bond issued by the Leisure Time Corporation. The $1,000 par value bond with semiannual payments has 4 percent annual interest and has 10 years remaining to maturity. The current yield to maturity on similar bonds is 12 percent. (Round "PV Factor" to 3 decimal places. Do not round intermediate calculations. Round the final answers to 2 decimal places.) a. What is the current price of the bonds? Use Appendix B and Appendix D Current price b. By what percent will the price of the bonds increase between now and maturity? Price increases by c. What is the annual compound rate of growth in the value of the bonds? (Use Appendix A) Annual compound rate
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
As corporate treasurer, you will purchase K1 million of bonds for the sinking fund in three months you believe rates will soon fall and would like to repurchase the company’s sinking fund bonds, which currently are selling below par, in advance of requirements. Unfortunately, you have to obtain approval from the board of directors for such a purchase, and this could take up to two months. What action can you take in the futures market to hedge any adverse movements in bond yields and prices until you actually can buy the bonds? Will you be long, or short? Why?

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