3. An investor takes a long position on an FRA that is based on 90-day LIBOR and has 6 months till expiration. The FRA rate equals 5%. LIBOR-90 at various dates are given below: Today : 5% After 3 months: 5.5% After 6 months: 6% After 9 months: 6.5% After 1 year: 7% The payoff on the FRA to the investor assuming that the notional principal equals $1m is closest to: A. $9,433.96 B. $2,463.05 C. $2,500

3. An investor takes a long position on an FRA that is based on 90-day LIBOR and has 6 months till expiration. The FRA rate equals 5%. LIBOR-90 at various dates are given below: Today : 5% After 3 months: 5.5% After 6 months: 6% After 9 months: 6.5% After 1 year: 7% The payoff on the FRA to the investor assuming that the notional principal equals $1m is closest to: A. $9,433.96 B. $2,463.05 C. $2,500

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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You enter in a long position in a 6x12 FRA at a LIBOR rate of 3.00% and a nominal value of $10M. (a) When does this FRA expire in months? (b) Suppose, at maturity, the 6-month LIBOR rate is 3.5%. What is your payoff on that FRA? Note you should calculate this value at the maturity of the FRA, which is month 6.
A lender makes a 10 year loan of 120,000 which is to be paid by level payments at the end of each month. The interest rate for the initial loan is 6 percent, nominal. After the 4'th year (48'th payment), the loan is sold to another investor, who wishes to make 3 percent interest (annual effective) off of the investment. But the borrower's payments remain the same. What is the selling price?
Suppose that you have just borrowed $225,000 using an adjustable-rate mortgage. Suppose that the payment is scheduled to adjust at the end of every year. Use the information provided below to calculate the year 2 payment for this loan. Index rate: Margin: Periodic Cap: Lifetime Cap: Amortization: $1,107 $1,160 $1,296 $1,178 1-year CMT (Currently 1.01% and will increase to 2.06% at the end of the 1st year) 275 basis points 2 percentage points 5 percentage points 30 years with monthly payments and compounding
Your business requests a 3-month loan for $450,000. What will be the interest paid at the end of the term if the business risk percentage is assessed at 2.2% and LIBOR is at 1.8%? interest paid = $ [?] Round to the nearest hundredth. Enter
The market’s 1 year interest rate is 6% while the 2-year interest rate is 7%. b) If a company needs to borrow $10m in 1 year for 1 years’ time, what interest will be agreed in a FRA?
Use the following spot rates to answer the following questions. Maturity Spot rate (%) 1 year 4.93% 2-years 4.47% 3-years 4.12% 5-years 3.84% 10-years 3.68% Assume that Citibank is offering to sell a one-year Treasury bill next year with a rate of 5% (i.e., you can enter into a contract today to lock in a 5% return on a one-year security purchased/sold next year). Based on the above spot rates, does the Citibank offer generate any arbitrage opportunities? If so, compute the total $ profits that can be generated from this opportunity, specifying the steps you would take. Assume you will borrow/invest $1,000. O Yes: profit of $5.55/ $1000 borrowed. O No: $0 O No: Loss of $5.55/ $1000 borrowed.based on Citibank's offered rate. O Yes: $55.55/$1000 borrowed.
A debt of P100,000 with interest at 24% compounded monthly, will be amortized by monthly payments of P 1000 as long as necessary. Compare answers from both methods. a. The OP at the end of 3 years. b. OP after the 45th payment. c. Estimate how many payments needed to settle the loan.
A debt of $600 is due 3 years from now and $800 due 5 years from now, is instead to be paid off by two payments: $500 nowand a final payment at the end of 6 years. What would this payment be if an interest rate of 6% compounded quarterly is assumed?
Suppose the term structure of interest rates is shown below: Term Rate (EAR%) 1 year 5.00% 2 years 3 years 5 years 10 years 20 years 4.50% 4.30% 4.30% 4.25% 4.15% The present value of receiving $1000 per year with certainty at the end of the next three years is closest to:
assume a $175,000 mortgage loan and 10-year term. The lender is charging an annual interest rate of 6 percent and 4 discount points at origination. a. What is the monthly payment Assuming that it is based on an amortization period of 30 years? b. What will be the required balloon payment at the end of the tenth year? c. What is the effective borrowing cost on the loan if it is held to maturity? Give typing answer with explanation and conclusion
A debt of P100,000 with interest at 24% compounded monthly, will be amortized by monthly payments of P 1000 as long as necessary. Use both prospective and retrospective methods. a. The OP at the end of 3 years. b. OP after the 45th payment. c. Estimate how many payments needed to settle the loan.
You have been assigned to estimate the interest rates that your company may have to pay when borrowing money in the near future. The following information is available.kPR = 2%MR = 0.1% for a 1 year loan increasing by 0.1% for each additional yearLR = 0.05% for a 1 year loan increasing by 0.05% for each additional yearDR = 0 for a 1 year loan, 0.2% for a 2-year loan, increasing 0.1% for each additional yearExpected Inflation Rates Year 1 = 7% Year 2 = 5% Year 3 and thereafter = 3% a. Calculate the inflation adjustment (INFL) for a 5-year loan. b. Calculate the appropriate interest rate for a 5-year loan.

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