Bruce bought a bank bill with a face value of $1 million, priced to yield 3.30 per cent per annum over the remaining 200 days until it matures. Bruce also sold a futures contract on a 90-day bank bill that expires in 110 days' time for the futures price of 96.55. Noting that the face value of the bill underlying these contracts is also $1 million, and that at the maturity of the futures contracts, the bank bill he holds will have 90-days to maturity, he decides to deliver the bank bill to close his short futures position. i) Identify the amount and timing of Bruce's net cash payments and receipts and ii) calculate the yield (simple interest, in percent per annum) he will achieve on his investment in the bank bill. (Ignore any cash flows from marking-to-market.)

Bruce bought a bank bill with a face value of $1 million, priced to yield 3.30 per cent per annum over the remaining 200 days until it matures. Bruce also sold a futures contract on a 90-day bank bill that expires in 110 days' time for the futures price of 96.55. Noting that the face value of the bill underlying these contracts is also $1 million, and that at the maturity of the futures contracts, the bank bill he holds will have 90-days to maturity, he decides to deliver the bank bill to close his short futures position. i) Identify the amount and timing of Bruce's net cash payments and receipts and ii) calculate the yield (simple interest, in percent per annum) he will achieve on his investment in the bank bill. (Ignore any cash flows from marking-to-market.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 9P

See similar textbooks

Similar questions

Today I enter a long position of 500 ounces in GCZ22 at the futures price of $1,850 per ounce. By June of 2022, my inflation concern comes to fruition, and the price of the GCZ22 contract increased to $2,000 per ounce. I decide to monetize half of my position; I sell 250 ounces of GCZ22. I hold the remainder until settlement in December 2022. The inflation worry subsides, and the contract settles at $1,800 per ounce. How much profit/loss do I have in total?
Billy has a bond paying semiannual coupons that has an annual coupon rate of 10%, a term of 15 years, and both face and redemption values of 20,000. Coupons are paid at the end of each 6 month period, starting 6 months after issue. Billy sells the bond to Mandy 34 months and 15 days after issue at an annual yield of 8% convertible semiannually. What price does Mandy pay Billy?
A writer sells 100 call options with strike $46 for $0.94 each and deposits these premiums in a bank. The calls mature in 30 days, and the bank's interest rate over those 30 days is 3%. At expiry the underlying asset of the call is worth $39 each. At expiry, the writer withdraws all cash from the bank, purchases the necessary amount of shares on the open market and completes the call contract. What is the writer's profit? Give your answer correct to two decimal places, and if the writer makes a loss include a minus sign.
On January 1, 2021, Austin plans to pay $1,050 for a $1,000, 12% semiannual bond. He will keep the bond for three years, receive six coupon payments, and then sell it. How much should he sell the bond for in order to receive a yield of 10% compounded semiannually?
On 5th December 2020, Jerome purchases a government bond worth $400, with a maturity of 3 years, face value of $500, and a coupon rate of 5% paid annually. The first coupon payment will be received a year from now (i.e., on 5th December, 2021). The yield to maturity offered by equally risky bonds is currently 7%. Such a yield to maturity stays constant over the next two years. On 5th December 2022, Jerome decides to sell this bond after receiving the second coupon payment. It turns out that, on that day, the new yield to maturity offered by equally risky bonds is 1.5%. At what price will Jerome be able to sell his bond?
Last week, you sold a futures contract on 5,000 troy ounces of silver at a settle price of S 23.10. Today, you made delivery and the daily settle price was $23.15. What amount will you receive at the time of delivery? Assume yesterday's settle price was $23.19.
Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 13.80%. Assuming that both investments have equal risk and Eric’s investment time horizon is flexible, which of the following investment options will exhibit the lower price? An investment that matures in seven years An investment that matures in six years
Mark buys a 10-year bond of face (and redemption) amount of $1000, with 10% annual coupons at a price to yield an annual effective rate of 10%. The coupons are immediately reinvested at an annual effective rate of 8% once received. Immediately after receiving and reinvesting the 4th coupon, Mark sells the bond to Jeno for a price that will yield an annual effective rate of 12% to Jeno. Calculate the yield rate that Mark actually earns on his investment.
In order to reduce risk when financing his new business, Linda intends to use a 3-month index futures contract. Assume that the index's current value is 2,040, the constantly compounded risk-free interest rate is 7.5% annually, and the dividend yield of that stock is 1% annually. Later, Linda believes that futures contracts on currencies can offer a greater return than futures contracts on indices. Consider storing a 3-year futures contract at a cost of MYR 6 per unit. Assume that the risk-free rate is 6% per year for all maturities and that the current price is MYR 760 per unit. Estimate the predicted price in the future. What will Linda do if she is an arbitrageur, and the real future price is higher than the predicted future price?
On January 1, 2024, Avalanche Corporation borrowed $120,000 from First Bank by issuing a two-year, 8% fixed-rate note with annual interest payments. The principal of the note is due on December 31, 2025. Avalanche wanted to hedge against declines in general interest rates, so it also entered into a two-year SOFR-based interest rate swap agreement on January 1, 2024, and designates it as a fair value hedge. Because the swap is entered at market rates, the fair value of the swap is zero at inception. The agreement called for the company to receive fixed interest at the current SOFR swap rate of 5% and pay floating interest tied to SOFR. This arrangement results in an effective variable rate on the note of SOFR + 3%. The contract specifies that the floating rate resets each year on June 30 and December 31 for the net settlement that is due the following period. In other words, the net cash settlement is calculated using beginning- of-period rates. The SOFR rates on the swap reset dates…
A speculator purchased Barclays Bank Ghana Limited corporate bond for ¢500,000. The bond is expected to yield a coupon payment of ¢50,000 per annum for the next 25 years. At the end of this period, it will be necessary to buy a new bond at cost of ¢700,000 at the same coupon rate so that the speculator can still meet his expenditures. Assuming that the coupon rate is the same as the interest, how should the purchaser provide for this future expenditure and what will be the effect on his percentage yield?
A gold futures contract requires the long trader to buy 100 troy ounces of gold. The initial margin requirement is $ 2,000 and the support margin requirement is $ 1,500. Matthew Evans enters long June gold futures contract at $ 320 per troy ounce. When could Evans receive a support margin call?