Solve it using formulas, no tablescorrect answers are:i) i1=0.08225 pai2=0.08362 pai3=0.10067 paii) f(2,1) = 0.13558 paiii) i(c3) = 0.09901 paIn a particular market, the 1-year and 2-year forward rates at time t = 1 are 8.5% per annumand 11% per annum, respectively.In the same market, the issue price of a 2-year fixed interest stock, paying coupons of 9%annually in arrears and redeemed at 106%, is £105 per £100 nominal.Calculate, to 5 decimal places, the following:(i)All the possible spot rates.(ii)The 1-year forward rate at time t = 2(iii)The 3-year par yield.

Answered: Image /qna-images/answer/2de05873-c03e-4775-8d34-4233d2dc177c.jpg

Answered: Solve it using formulas, no tables…

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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Complete the following using present value. (Use the Table 12.3.) (Do not round intermediate calculations. Round the "PV factor" to 4 decimal places and final answer to the nearest cent.) $ Amount desired at end of period 22,400 Length of time 13 years Rate On PV Table 12.3 Compounded Periods used 12 % Semiannually Rate used % PV factor used PV of amount desired at end of period
Yogesh
Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows:1R1 = 2.62%, E(2r1) = 3.90%, E(3r1) = 4.40%, E(4r1) = 5.90%Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities
21. The k-year spot rate is given by the formula s = 0.068 +0.002k - 0.001k². What is the 3-year forward rate (in)? A) 4.3% B) 4.5% C) 4.9% D) 5.5% E) 5,9%
13- VMIC Corp. has asked you to look at the following data. The interest rate is 10%. 38 A Marginal Cost Data Year, n Existing Asset 1 $2000 2200 2 3 4 5 6 7 2300 2550 2900 3400 4000 EUAC if Kept n Years New Asset $6500 4200 3000 2650 2700 2800 3000 (a) What is the new asset's minimum cost life? (b) When, if at all, should we replace the existing asset with the new asset?
Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows:1R1 = 2.62%, E(2r1) = 3.90%, E(3r1) = 4.40%, E(4r1) = 5.90%Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
The below call option is European. What is the minimum arbitrage profit at time T=1Y arising from the following prices? So = $19.63 T=1Y K = $18 C = $2.77 r = 6% (cont. comp. annual rate) (required precision 0.01 +/- 0.01)
The spot price of an investment asset is $35 and the risk-free rate for all maturities is 5% with continuous compounding. The asset provides an income of $2 at the end of the first year and at the end of the second year. Which of the below is closest to the three-year forward price? a. $35.84 b. $19.67 c. $40.50 d. $36.35
Assume that you conduct a relative value trade and close it out after 34 days. Your 34-day return is 0.40%. Annualize this return as an effective annual yield (EAY). Assume that a year has 365 days
5. Compare the following 2 alternatives with a method of your choice. The market rate is 6% and inflation is expected to run at 2.5% per year. Alt A B Construction cost $ Benefits $/yr 450,000 380,000 2,000,000 1,500,000 Salvage 200,000 150,000 Life (yrs) 12 9
SOLVE STEP BY STEP IN DIGITAL FORMAT 2. Calculate the amount of the previous problem, if the investment is compounded quarterly. Formulas Compound interest Annual compounding M = C(1+i)n 1 = Cni M = C(1 + i) Fractional capitalization M=C{1+4)*
The 1-year spot rate is 8%p.a. effective. The term structure of 1-year effective forwardratesisasfollows: attimet=1therateis7%,attimet=2therate is 6%, at time t = 3 the rate is 5%. (a) Determine the term structure of spot rates. (b) A fixed income security pays £10 annual coupons and it is redeemed after 4 years for £100. Compute its price at time t = 0.

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