Assume that a 5-month forward contract on a zero-coupon bond with market face value of Php5,000 and is currently trading at Php4,777. Suppose that the annual risk-free interest rate is 6.28%. Determine the forward contract price under the no-arbitrage prin
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Assume that a 5-month forward contract on a zero-coupon bond with market
face value of Php5,000 and is currently trading at Php4,777. Suppose that
the annual risk-free interest rate is 6.28%. Determine the forward contract price under the no-arbitrage principle.
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- Assume that a 5-month forward contract on a zero-coupon bond with marketface value of Php5,000 and is currently trading at Php4,777. Suppose thatthe annual risk-free interest rate is 6.28%, How much is the arbitrage profit?Consider a 3-month forward contract on a zero-coupon bond with a face value of $1,000 that is currently quoted at $1000, and assume a risk-free annual interest rate of 6%. Determine the price of the forward contract under the no-arbitrage principle.Assume that a 6-month forward contract on a zero-coupon bond with market face value of Php12,000 and is currently priced at Php8,000. With an annual risk-free interest rate of 5.0625%, the forward contract price under the no-arbitrage principle is a. Php8,000. b. Php7,794.87. c. Php7,500. d. Php8,200. Let's pretend the forward contract is truly worth Php8,300 instead of the no-arbitrage price determined above. This bond must be delivered 6 months from now due to a short position in the forward contract. In this case, the arbitrage entails borrowing Php8,000 at the risk-free rate of 5.0625%, purchasing the bond for Php8,000, and simultaneously taking a short position in the forward contract on the zero-coupon bond, obligated to deliver the bond for the forward price and receive Php8,300 at the contract's expiration. We can fulfill our forward contract obligations at the settlement date by delivering the zero-coupon bond for payment of Php8,300, regardless of its…
- You can enter into a forward contract for a bond with a maturity in one year months that pays a coupon payment of $25 every six months. The bond has a forward price of $930. The current zero coupon rate for 6 months is 4% annually and the zero coupon risk free rate for one year is 5% annually (assume continuous compounding). The current price of the bond is $943. Use the equilibrium forward price equation (F=Sert) adjusted for both coupon payments to see if an arbitrage opportunity exists. If arbitrage is possible, explain the arbitrage opportunity that exists and show how the profit can be earned – make sure to explain every step in detail in realizing the profit and establishing the arbitrage. If arbitrage is not possible, show how you know it is not possible. ANSWER IN TYPING OTHER WISE DOWNVOTE YOU• When the bond’s coupon rate is less than the bondholder’s required return, the bond’s intrinsic value will be less than its par value, and the bond will trade at . For example, assume Oliver wants to earn a return of 10.50% and is offered the opportunity to purchase a $1,000 par value bond that pays a 8.75% coupon rate (distributed semiannually) with three years remaining to maturity. The following formula can be used to compute the bond’s intrinsic value: Intrinsic ValueIntrinsic Value = = A(1+C)1+A(1+C)2+A(1+C)3+A(1+C)4+A(1+C)5+A(1+C)6+B(1+C)6A1+C1+A1+C2+A1+C3+A1+C4+A1+C5+A1+C6+B1+C6 Complete the following table by identifying the appropriate corresponding variables used in the equation. Unknown Variable Name Variable Value A B $1,000 C Semiannual required return Based on this equation and the data, it is to expect that Oliver’s potential bond investment is currently exhibiting an intrinsic value less than…Suppose that for a Treasury bond futures contract, the cheapest-to-deliver bond is a 4% coupon bond with a quoted price of 114.50 and conversion factor of 1.3150. The futures contract matures in six months and the next coupon will be paid in six months. There is no accrued interest. The six-month risk-free interest rate is 5%. What is the value of the Treasury bond futures contract?
- Suppose that forward contract is valued at Php5,100 instead of the no-arbitrage price. This bond must be delivered 5months from now due to a short position in the forward contract. In thiscase, the arbitrage entails borrowing Php4,777 at the risk-free rate of6.28%, purchasing the bond for Php4,777, and simultaneously taking ashort position in the forward contract on the zero-coupon bond, obligatedto deliver the bond for the forward price and receive Php5,100 at thecontract's expiration. We can fulfill our forward contract obligations at thesettlement date by delivering the zero-coupon bond for payment ofPhp5,100, regardless of its market value at the moment. The Php5,100cash from the forward contract settlement would be used to repay thePhp4,777 loan. What is the total amount of repaying the loan over 5months?Suppose a 10 -year,$1,000bond with a(n)9%coupon rate and semiannual coupons is trading for a price of$946.34. a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? b. If the bond's yield to maturity changes to9%APR, what will the bond's price be?Assume that you are considering the purchase of a 30-year, noncallable bond with an annual coupon rate of 13.0%. The bond has a face value of $1,000, and it makes semiannual interest payments. If you require an 9.0% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond? You are not required to show calculations. However to receive credit you must provide the inputs used (N, PMT, FV, I/Y, PV) to solve. If you utilize a template, you can copy and paste the section used in the submission. $699.34 $1,000.00 $1,412.76
- Assume that the current yield on one-year securities is 7 percent, and that the yield on a two-year security is 8 percent. If the liquidity premium on a two-year security is 0.6 percent, then the one-year forward rate is approximately: Group of answer choices 8.6 percent. 7.4 percent. 8.4 percent. 7.6 percent.The taltola bond has a duration of 2.87 years and Beltola bond has Tk.1,000 par value, 3years to maturity , and an 8 percent yield paying semiannual interests at 10 percent. The current yield curve represents an inverted trend indicating decline in future interest rates. Under these circumstances, you have to decide which bond you have to invest in. Calculate the duration of Beltota bond and tell us which bond you will invest in and why.Bond B is a 2-year maturity coupon-paying bond with annual coupon of 10 and face value of 110. The yield curve is flat at 4% per year. Consider a forward contract F on one bond B. If the forward F's maturity is 15 months from now, what is the no-arbitrage forward price F0, 15 months? Enter your answer with 2 decimal places after the point.
