You are an exporter in possession of Banker’s Acceptance (B/A). You are considering holding the B/A until maturity or selling it in the Money Market (MM). If the face amount of the B/A is 10,000,000 USD, the acceptance commission is 2%, and the competitive MM rate for 90-day B/As is 5% What bond equivalent yield would make you indifferent between the MM and holding the B/A until maturity? Note: for B/A calculations you can assume a banker’s year (360 days), for bond calculations the convention is to use the actual number of days (365). Show and explain any intermediary calculations. Also interpret and explain your conclusion. I want the interpretation please.
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You are an exporter in possession of Banker’s Acceptance (B/A). You are considering holding the B/A until maturity or selling it in the
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- IBM is considering having its German affiliate issue a 10-year, $100 million bond denominated in euros and pricedto yield 7.5%. Alternatively, IBM’s German unit can issuea dollar-denominated bond of the same size and maturityand carrying an interest rate of 6.7%.a. If the euro is forecast to depreciate by 1.7% annually, what is the expected dollar cost of the eurodenominated bond? How does this compare to the costof the dollar bond?b. At what rate of euro depreciation will the dollar cost ofthe euro-denominated bond equal the dollar cost of thedollar-denominated bond?c. Suppose IBM’s German unit faces a 35% corporate taxrate. What is the expected after-tax dollar cost of theeuro-denominated bond?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?Assume that Seminole, Inc., considers issuing a Singapore dollar–denominated bond at its present coupon rate of 7 percent, even though it has no incoming cash flows to cover the bond payments. It is attracted to the low financing rate because U.S. dollar–denominated bonds issued in the United States would have a coupon rate of 12 percent. Assume that either type of bond would have a four-year maturity and could be issued at par value. Semi-nole needs to borrow $10 million. Therefore, it will issue either U.S. dollar–denominated bonds with a par value of $10 million or bonds denominated in Singapore dollars with a par value of S$20 million. The spotrate of the Singapore dollar is $.50. Seminole has forecasted the Singapore dollar’s value at the end of each ofthe next four years, when coupon payments are to be paid. Determine the expected annual cost of financingwith Singapore dollars. Should Seminole, Inc., issue bonds denominated in U.S. dollars or Singapore dollars? Explain. END OF…
- Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $25,950,000, with the promise to buy them back at a price of $26,000,000. a. Calculate the yield on the repo if it has a 5-day maturity. b. Calculate the yield on the repo if it has a 15-day maturitUnion Corp must make a single payment of €5 million in six months at the maturity of a payable to a French firm. The finance manager expects the spot price of the € to remain stable at the current rate of $1.60/€. But as a precaution, the manager is concerned that the rate could rise as high as $1.70/€ or fall as low as $1.50/€. Because of this uncertainty, the manager recommends that Union Corp hedge the payment using either options or futures. Six months Call and Put options with an exercise price of $1.60/€ are available. The Call sells for $.08/€ and the Put sells for $.04/€. A six month futures contract on € is trading at $1.60/€. Should the manager be worried about the dollar depreciating or appreciating? If Union Corp decides to hedge using options, should it buy Calls or Puts to hedge the payment? Why? If futures are used to hedge, should the company buy or sell € futures? Why? What will be the net payment on the payable if an option contact was used? assume…The company HelloCustomer is afraid of another Corona lockdown and wants to safeguard some liquidity. Therefore it issues a bond with a face value of EUR 100 million at a price of 97.9 and a maturity of 9 years. The coupon payment is USD 1 million each year and the payment annually. The current exchange rate is 1 EUR = 1.22 USD. After 9 years the company promises to pay back the full notional amount. In addition the bond has a call option after 3 years. What is the yield to call? Please also explain how you calculated it.
- Assume that you are running an Australia based company which has an account payable of EUR 125,000 due in three months. You decide to hedge out the associated foreign exchange risk using futures contracts. A futures contract of EUR125,000 is selling at A$1.5410 per euro. Suppose the next three days’ settlement prices are A$1.5399, A$1.5480, and A$1.5410. The initial margin of your performance bond account is $2,000 and maintenance margin is $1,500. What is your margin account balance at the end of the first day and what is the balance of this account at the end of the third day?Even though most corporate bonds in the United States make coupon payments semianually, bonds issued elsewhere often have annual coupon payments. Suppose a German compay issues a bond with a par value of $1,000, 10 years to maturity, and a coupon rate of 6 percent paid annually. If the yield to maturity is 7.1 percent, what is the current price of the bond?• 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…
- An insurance company must make payments to a customer of $10 million in one year and $4 million in five years. The yield curve is flat at 10%.a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase?b. What must be the face value and market value of that zero-coupon bond?Citibank has developed a way of creating a zero-coupon bond, called a strip, from the coupon bearing Treasury bond by selling each of cash flows underlying the coupon-bearing bond as a separate security. You as a treasurer working for Citibank, have a relatively simple trading strategy. You would buy strips and sell them in the forward market. Suppose for example, that the 3-month interest rate is 4% per annum and the spot price of a strip is $70. What will be the 3-month forward price?Assuming that actual forward price is 72, formulate an arbitrage strategy.The 3 year USD bond issued by Company A has coupon of 11.5%, which the company thinks is too high. In fact the bond price has since risen substantially and current yield is 9.5%. The company thinks due to recent successful fund raising, interest rate will fall. Hence it wants to do interest rate swaps to change the payment from fixed rate to floating rate. Assuming that a bank is willing to do the trade up to USD notional of 1 million USD, it needs to consider the following facts to quote a price. Please give your best estimate, and rationale. 1. With the current 3 year USD swap rate of 1.4%, and bank receives the 11.5% coupon (payment is every 6 months, what is the Company’s credit risk premium? 2. If the Bank pays the Company 11.5% fixed rate to cover the coupon payment, what is the fair price the Company needs to pay the bank (assuming that the floating rate index is the 6 month Libor rate, currently at 1.72%)? 3. Please consider the credit risk premium the bank need to charge…
