a)define forward rate agreement (FRA). b)describe the structure of FRAs and determine their payoffs. c)explain how to price and value FRAs. d)define interest rate options. e)define interest rate caps, floors, and collars.
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a)define forward rate agreement (FRA).
b)describe the structure of FRAs and determine their payoffs.
c)explain how to
d)define interest rate options.
e)define interest rate caps, floors, and collars.
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- Which of the following statements is true? a. In an interest rate swap, the principals are exchanged between the two parties b. The sum of a MNC's transaction exposure, operating exposure and transaction exposure is the MNC's economic exposure c. In a two-party interest rate swap agreement, we can definitely concluded that both parties will benefit from the agreement d. More than one of these statements is true.Jack’s Lock and Key are considering remodeling. It estimates that the remodeling will cost $6,000 and that as a result revenues will rise by $3,000 the first year, $2,500 the second year, $1,500 the third year, and have no effect after then. If the interest rate is 5%, should Jack’s remodel? Defend your answer by showing your work.If the price of a government bond (gilt) traded on the stock market rises above its nominal value, which of the following statement must be true? 1 -The bond's coupon falls below the yield 2 - The bond's coupon rises above the yield 3-the bond's yield rises above the coupon 4 - the bond's yield falls below the coupon
- Interest rate risk refers to changes in the bond's ___________ (coupon rate, credir rating, par value, or yield to maturity) , whereby a decrease in that item causes bond values to _______________ (increase, decrease, remain constant, or vary randomly)Which of the following is a true statement? a. In a bubble, the price of the asset is the expected present value of its future returns. b. The overall real value of the stock market may fluctuate significantly over a year. c. The higher the one-year interest rate, the higher the present discounted value of a payment next year. d. The yield curve normally slopes down.Interest rate spread Suppose that a 5-year Treasury bond pays an annual rate of return of 2.9%, and a 5-year bond of the fictional company Risky Investment Inc. pays an annual rate of return of 7.3%. The risk premium on the Risky Investment bond is __________ percentage points. Consider an increase in the annual rate of return on the Risky Investment bond from 7.3 percent to 8.9 percent. Such a change would __________(NARROW/WIDEN) the interest rate spread on the Risky Investment bond over Treasuries to __________ . Which of the following explains the increase in the annual rate of return on the Risky Investment bond? a. The expected default rate on the Risky Investment bond has decreased. b. The expected default rate on the Treasury bond has increased. c. The expected default rate on the Treasury bond has decreased. d.The expected default rate on the Risky Investment bond has increased. NOTE- This is one question but it is divided into…
- A manager must determine which of two products to market. From market studies, the manager constructed the following payoff matrix of the present value of all future net profits under all the different possible states of the economy: State of the economy Product 1 Product 2 Probability Profit ($) Probability Profit ($) Boom 0.2 50 0.2 30 Normal 0.5 20 0.4 20 Recession 0.3 0 0.4 10 The manager’s utility function for money is U = 100M – M2 where U is the total utility of money (in utils) and M refers to the dollars of profit. Determine if this manager a risk seeker, risk neutral, or a risk averter. Explain your answer. If the manager’s objective was profit maximization regardless of risk (أي دون أخذ المخاطرة بعين الاعتبار), which product should the manager introduces? Explain your answer. Evaluate the risk associated per dollar of profit with each product, i.e. find the coefficient of variation for each project.…The price of a bond with no expiration date is originally $1,000 and has a fixed annual interest payment of $150. If the price of the bond then falls by $100, what will be the interest rate yield to a new buyer of the bond? Multiple Choice 16.7 percent 8.4 percent 15 percent 13.6 percent 10 percentUsing a graph similar to the one in figure 1 show how, when interest rates increases, savings decreases. make sure to provide proper explanation. 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.
- Jane, who works for the economic research department in a multinational corporation, is preparing a report for the advisory board of the company. The report intends to clarify in which country they should invest given the expected change in demand. The objective is, of course, to identify the country with greater change in demand. Jane analyzes countries A and B that currently have the same demand. She calculates the partial derivatives of demand with respect to income and finds that for country A it is greater than for country B. Demand in country A is measured in pounds and in country B in Kg. Can we conclude that if the only change expected in both countries is a change in income of 3.5%, then the company should invest in country A? no, we should calculate instead the income elasticity for the consumption of the good the company sells in each country. There is no statistic that can illuminate the advisory board on this problem. yes, because the derivative tells us that for each…Convergence happens when the pre-determined price of an asset to be transacted and the cash price of the commodity moves closer together True or falseEvaluate the following instruments as a tool to hedge portfolio income 1. Interest rate future 2. Interest rate options