The current price of a 3*6 Euribor FRA is 1.500% while the Euribor yield curve prevailing today is as follow: Maturity (Months) 3 6 Yield 1.049% 1.272% Is there any arbitrage opportunity? Illustrate the arbitrage operation assuming that the 3-month Euribor observed at maturity is a)1.550% and b) 1.430%

The current price of a 3*6 Euribor FRA is 1.500% while the Euribor yield curve prevailing today is as follow: Maturity (Months) 3 6 Yield 1.049% 1.272% Is there any arbitrage opportunity? Illustrate the arbitrage operation assuming that the 3-month Euribor observed at maturity is a)1.550% and b) 1.430%

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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A3) Finance The implied volatilities for strike prices of 1.1 and 1.2 when the time to maturity is 3 months are 20% and 22%. The implied volatilities for strike prices of 1.1 and 1.2 when the time to maturity is 9 months are 17% and 20.2%. What is the implied volatility for the strike prices of 1.1 for a time to maturity of 6 months? Select one: a. 20.10% b. 8.50% c. 21.10% d. 19.40% e. 18.50%
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M6
a) If the dividend yield is 1.40% annualized, the interest rate is -0.10% annualized, and the index is trading at 28, 144 today, what is the expected price of a 6-month forward? 28, 144e(-0.001 -0.0140)*0.50 = 27,961.66 b ) The 6-month forward is currently quoted at 28,000. Using the information above and the grid below, show how you would arbitrage this index profitably. Be sure to indicate whether each transaction is long or short ( buy or sell) and to include (+) and (-) signs on your cash flows. Use 0 decimals (whole numbers only) in your answers. Transaction Time 0 cash flows Time t cash flows Totals:
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Suppose you are given the following information about the default-free, coupon-paying yield curve: Maturity (years) Coupon rate (annual payment) YTM 1 0.00% 2.587% a. Use arbitrage to determine the yield to maturity of a two-year zero-coupon bond. b. What is the zero-coupon yield curve for years 1 through 4? Note: Assume annual compounding. 2 11.00% 4.008% a. Use arbitrage to determine the yield to maturity of a two-year zero-coupon bond. The yield to maturity of a two-year, zero-coupon bond is %. (Round to two decimal places.) b. What is the zero-coupon yield curve for years 1 through 4? The yield to maturity for the three-year and four-year zero-coupon bond is found in the same manner as the two-year zero-coupon bond. The yield to maturity on the three-year, zero-coupon bond is %. (Round to two decimal places.) The yield to maturity on the four-year, zero-coupon bond is %. (Round to two decimal places.) Which graph best depicts the yield curve of the zero-coupon bonds? (Select the…
Assume the Liquidity Premium Theory of the Term Structure of Interest Rates holds. The WSJ quotes 0.25% annual yield on a one-year T-note and 0.5% annual yield on a two-year T-note. Suppose the annual yield on a one-year T-note is expected to stay at 0.25% over the next 2 years. What must be the liquidity premium on a two-year T-note?
1. For each of the following issues, indicate whether the price of the issue should be at the nominal value, above the nominal value, or below the nominal value. You should assume that each issue is redeemed at par. (a) (b) (c) (d) (e) Issue A B DE Annual Coupon Rate (%) 5.25 6.625 0 5.875 4.5 Annual Yield Required by Market (%) 7.25 7.15 6.2 5 4.5
One-year Treasury securities yield 2.85%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 3.4%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places. %
Could you help with number 2 and 3?
Example: suppose the following rates on risk-free zeros: Maturity (years) Yield to Maturity (y) 1 2 3 4 2.5% 3.5% 5% 6.5% Forward Rate 4.51% 8.07% 11.1% Calculate the effective 2-year forward rate in 2-years: 2f2
One-year Treasury securities yield 4.85%. The market anticipatesthat 1 year from now, 1-year Treasury securities will yield 5.2%. If the pure expectationstheory is correct, what is the yield today for 2-year Treasury securities? Calculate the yieldusing a geometric average.

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