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The Thailand Plettery Steel Company has a debt of nzd 100,000, which is
repayable in twelve months. Plettery’s controller Jane Due is having trouble
sleeping at night knowing that the debt is unhedged. The current thb/nzd
exchange rate is 20, and p.a. interest rates are 21 percent on thb and 10 percent on nzd. Jane is considering a forward hedge (at Ft,T = 20 × 1.21/1.10 = 22), but a friend tells her that he recently bought a call on nzd 100,000 with X = 20, and is willing to sell it to her at the historic cost, thb 1 per nzd or thb 100,000 for the total contract. What should she do?
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- The Kasapreko Company Limited has a debt of nzd 100,000, which is repayable intwelve months. The company’s controller, Kweku Manu is having trouble sleepless atnight knowing that the debt is unhedged. The current ghs/nzd exchange rate is 20, andp.a. interest rates are 21 percent on ghs and 10 percent on nzd. Kweku is considering aforward hedge (at Ft,T = 20 × 1.21/1.10 = 22), but a friend tells him that he recentlybought a call on nzd 100,000 with X = 20, and is willing to sell it to him at the historiccost, ghs 1 per nzd or ghs 100,000 for the total contract. What should he do?A business plans to borrow approximately $40 million in short-term funding through the issue of commercial paper in three months’ time. The business does not have a view on what is likely to happen to interest rates over the next three months, but it would be very satisfied if it could obtain its funding at the current yield. Using the following data, show how 90-day bank-accepted bills futures contracts can be used to hedge the interest rate risk to which the business is exposed. Show the calculation and timing of all transactions and cash flows (ignore transaction costs and marginrequirements). Today’s data: current commercial paper yields 6.00 per cent perannum 90-day bank-accepted bills futures contract 93.75. Data in threemonths: commercial paper yields 7.00 per cent perannum 90-day bank-accepted bills futures contract93.25.Assume you are treasury manager in a company and the company requires $1,000,000 ($1 Million) in 6 months for the duration of 1 year. You can finance this need by trading zero-coupon bonds, i.e., buying or selling zero-coupon bonds or go to bank to organize a forward contract. The bank quotes a forward rate 14% per annum semi-annual compounding applied from 6 months to 18 months. The prices of zero-coupon bonds with maturity 6 months and 12 months are listed in the above table and the price of zero-coupon bond with maturity 18 months is calculated in Part II. Ignoring all the other costs and given all the information above, are you going to accept the bank’s offer? Justify your decision.
- As corporate treasurer, you will purchase K1 million of bonds for the sinking fund in three months you believe rates will soon fall and would like to repurchase the company’s sinking fund bonds, which currently are selling below par, in advance of requirements. Unfortunately, you have to obtain approval from the board of directors for such a purchase, and this could take up to two months. What action can you take in the futures market to hedge any adverse movements in bond yields and prices until you actually can buy the bonds? Will you be long, or short? Why?Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 6.5%, payable annually, and a par value of $1,000. The 1-year interest rate is 6.5%. Next year, there is a 35% probability that interest rates will increase to 8% and a 65% probability that they will fall to 5%. If the company decides instead to make the bonds callable in one year, what coupon will be demanded by the bondholders for the bonds to sell at par? Assume that the bonds will be called if interest rates fall and that the call premium is equal to the annual coupon.Access Ltd is financing a new investment and was previously unsuccessful to secure a similar interest rate as they had with their previous debt from their local Bank. Given their AAA credit rating, they instead decided to issue 5000 units of a 10-year bond to fund the investment. Coupon rate is set at 8% per annum and will be paid quarterly. The face value of one of the bonds is $1,000. The estimated yield for similar bonds of comparable risk rating is 12% per annum. Determine the market price of the one of the bonds.
- ABC Corporation wishes to raise money by selling a 90-day promissory note in the short-term money markets. The note promises to pay the holder $17,000,000 at maturity. If yields on similar risk notes are currently 2.8% p.a., how much money will ABC Corporation receive for the note? If the purchaser of the note holds it until maturity, what is the total amount of interest they will earn? For the purchaser in 2), what will be the return on investment (ignoring taxes)? Need help answering all these please!Suppose that the return on a U.K. treasury bill is eight percent annum and the return on a U.S. treasury bill is eight percent annum and that you had $1,000,000 earmarked for short term investment for a period of a month. In which of the securities would you place your money? (Assume you are not a speculator). Show your calculations. 1 British pound (spot) $1.7748 1 British pound (30-day futures) $1.7776Standard bank has assets of $ 150 million, liabilities of $ 135 million and equity of $ 15 million. It asset duration is six years and the duration of the liabilities is for four years. Standards bank wishes to hedge the balance sheet with 20-year T-bond futures contracts, witch are currently trading at $95 per $100 face value and duration of 10.37 year. Note that T-bond futures are sold in $100000 face value per contract. What is the duration gap of Standard Bank? A.2 years B.3.2 years C.2.4 years D.-2.4 years
- Corral Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 8.5 percent, payable annually. The one-year interest rate is 8.5 percent. Next year, there is a 40 percent probability that interest rates will increase to 10 percent, and there is a 60 percent probability that they will fall to 6 percent. If the company decides instead to make the bonds callable in one year, what coupon will be demanded by the bondholders for the bonds to sell at par? Assume that the bonds will be called if interest rates fall and that the call premium is equal to the annual coupon. a) 8.12% b) 8.77% c) 8.59% d) 8.35%Two years ago, Malayawata Steel issued RM 100 million worth of ten-year bonds with a face value of RM1,000.00 and a coupon rate of 5%. Coupon payments are made semi-annually.Two years ago, the market yield-to-maturity was 3% p.a.Due to the increased insecurity facing the industry, the market yield to maturity is now 7% p.a.a) Determine the market price of the bonds at issue based on an appropriate model.b) Based on the yield-to-maturity today, assess whether the price has changed and proceed to determine its market price today.c) Compare the results in (a) and (b) above and interpret the sensitivity of bond prices to maturity and yield to maturity.New Hampshire Corp. has decided to issue three-year bonds denominated in 10 million Chinese yuan at par. The bonds have a coupon rate of 14 percent. If the yuan is expected to appreciate from its current level of $0.15 to $0.156, $0.164, and $0.173 in years 1, 2, and 3, respectively, what is the financing cost of these bonds?
