Problem 3.3.Yields on moneymarket instrumentsroblem 3.4.Calculate the following:a. If the overnight fed funds rate is quoted as 2.25 percent, what is the bond equivalentrate?b. Suppose a bank enters a repurchase agreement in which it agrees to buy Treasurysecurities from a correspondent bank at a price of Rs 24,950,000, with promise to buythem back at a price of Rs 25,000,000. Calculate the yield on the repo if it has 21 daysto maturity.c. A government securities dealer is currently borrowing Rs 10 million from a moneycenter bank using repurchase agreements based on Treasury bills. If today's repo rateis 5.5 percent, how much in interest will the dealer owe the bank for an overnightborrowing?d. A security dealer borrows Rs 25 million cash through repo from a company for oneday. The dealer pays Rs 2,500 in interest on this loan. What is repo rate on this loan?You can buy commercial nanor

ANSWERS:- a. Bond equivalent rate=2.287% b. Yield on the repo =3.48% c. interest = Rs 1527.77 d.…

Answered: Calculate the following: a. If the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The company HelloCustomer is afraid of another Corona lockdown and wants to safeguard some liquidity. Therefore it issues a bond with a face value of EUR 100 million at a price of 97.9 and a maturity of 9 years. The coupon payment is USD 1 million each year and the payment annually. The current exchange rate is 1 EUR = 1.22 USD. After 9 years the company promises to pay back the full notional amount. In addition the bond has a call option after 3 years. What is the yield to call? Please also explain how you calculated it.
An investor in Treasury securities expects inflation to be 2.0% in Year 1, 2.7% in Year 2, and 3.55% each year thereafter. Assume that the real risk-free rate is 2.35% and that this rate will remain constant. Three-year Treasury securities yield 5.20%, while 5-year Treasury securities yield 6.00%. What is the difference in the maturity risk premiums (MRPs) on the two securities; that is, what is MRP5 - MRP3? Do not round intermediate calculations. Round your answer to two decimal places
Consider a 10-year bond with a face value of $1,000 that has a coupon rate of 5.8%, with semiannual payments.
A BBB-rated corporate bond has a yield to maturity of 7.4%. A U.S. Treasury security has a yield to maturity of 5.7%. These yields are quoted as APRs with semiannual compounding. Both bonds pay semi-annual coupons at a rate of 6.1% and have five years to maturity. a. What is the price (expressed as a percentage of the face value) of the Treasury bond? b. What is the price (expressed as a percentage of the face value) of the BBB-rated corporate bond? c. What is the credit spread on the BBB bonds? *round to three decimal places*
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.) 6.799% O7.9988% O9.1186% O 10.1585% 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 0.15%. What is the market's estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) O 7.6942% O 8.7714% O9.7716% O 6.5401% Suppose the yield on a two-year Treasury security is 5.83%, and the yield on a five-year Treasury security is 6.20%. Assuming that the pure expectations theory is correct, what is the market's estimate of the three-year Treasury rate two years from now? (Note: Do not…
The market has an expected rate of return of 10.7 percent. The long-term government bond is expected to yield 5.8 percent and the U.S. Treasury bill is expected to yield 3.9 percent. The inflation rate is 3.6 percent. What is the market risk premium?
Explain well with proper step by step Answer.
A Canadian bank that issues AUD 250M 5-year bonds to fund AUD 200M loans with 6-year maturity is exposed to the following risks : A depreciation of the Australian dollar against the Canadian plus credit plus liquidity risk plus reinvestment risk, i.e. decreasing interest rates. A depreciation of the Australian dollar against the Canadian dollar, plus credit risk plus liquidity risk plus refinancing risk, i.e. increasing interest rates. An appreciation of the Australian dollar against the Canadian dollar, plus credit risk plus refinancing risk, i.e. increasing interest rates. An appreciation of the Australian dollar against the Canadian dollar, plus credit risk plus reinvestment risk, i.e. decreasing interest rates.
Recall that on a one-year Treasury security the yield is 4.4600% and 6.6900% 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 0.4%. What is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) 9.2933% 8.152% 10.353% 6.9292%
Suppose today is January 2, 2022, and investors expect the annual nominal risk-free interest rates in 2026 and 2027 to be: Year One-Year Rate (rRF) 2026 4.5 % 2027 2.1 Currently, a four-year Treasury bond that matures on December 31, 2025 has an interest rate equal to 3.0 percent. Assume the bonds have no risk. What is the yield on Treasury bonds that mature at the end of 2026 (a five-year bond)? Round your answer to one decimal place. _____ % What is the yield on Treasury bonds that mature at the end of 2027 (a six-year bond)? Round your answer to one decimal place. _____ %
A Credit Default Swap is structured like the one below for a protection of $100 million. If payments are made annually, what are the cash flows from A to B if there is a default after 2 years and 2 months and recovery rate is 40%? And what are the cash flows from B to A? 70 bps per year Default Default Protection Protection Buyer, A Seller, B Payoff if there is a default by reference entity=100(1-R)
A bank wishes to hedge its $30 million face value bond portfolio (currently priced at 99 percent of par). The bond portfollo has a duration of 9.75 years. It will hedge with T-bond futures ($100,000 face) priced at 98 percent of par. The duration of the T-bonds to be delivered is nine years. How many contracts are needed to hedge? Should the contracts be bought or sold? Ignore basis risk.

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