Perpetuities. The Canadian Government has once again decided to issue a consol (a bond with a never-ending interest payment and no maturity date). The bond will pay $90 in interest each year (at the end of the year), but it will never return the principal. The current discount rate for Canadian government bonds is 10%. What should this consol bond sell for in the market? What if the interest rate should fall to 9%? Rise to 11%? Why does the price go up when interest rates fall? Why does the price go down when interest rates rise? If the current discount rate for Canadian government bonds is 10%, what should this bond sell for in the market? $ (Round to the nearest cent.)

Perpetuities. The Canadian Government has once again decided to issue a consol (a bond with a never-ending interest payment and no maturity date). The bond will pay $90 in interest each year (at the end of the year), but it will never return the principal. The current discount rate for Canadian government bonds is 10%. What should this consol bond sell for in the market? What if the interest rate should fall to 9%? Rise to 11%? Why does the price go up when interest rates fall? Why does the price go down when interest rates rise? If the current discount rate for Canadian government bonds is 10%, what should this bond sell for in the market? $ (Round to the nearest cent.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter22: International Financial Management

Section: Chapter Questions

Problem 6P

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The Canadian Government has once again decided to issue a consol (a bond with a never-ending interest payment and no maturity date). The bond will pay $90 in interest each year (at the end of the year), but it will never return the principal. The current discount rate for Canadian government bonds is 5%. What should this consol bond sell for in the market? What if the interest rate should fall to 4%? Rise to 6%? Why does the price go up when interest rates fall? Why does the price go down when interest rates rise? If the current discount rate for Canadian government bonds is 5%, what should this bond sell for in the market?
A US government bond in the amount of $1,000 will mature in six years, has no coupon payments, and carries an interest rate of 8%. What is the value of this bond today?
a) At 21 February 2018, the US Government could borrow at an annual 10-year yield of 2.89%. At that yield, how much were financial markets paying for the right to receive $100 from the US Government 10 years later? (b) Suppose a 5-year zero-coupon bond (??? = $100) issued by the US government is currently trading at $90. What is the annual yield an investor would receive for buying such a bond and holding it to maturity? (c) Suppose the US Federal Reserve (the US Central Bank) wants to lower longer-maturity yields. Briefly explain the process (known as Quantitative Easing) it could use to achieve this.
Suppose a U.S. government bond promises to pay $3,000 three years from now. If the going interest rate on a 3-year government bond is 7%, how much is the bond worth today?
Suppose a U.S. government bond will pay $1,000 three years from now. If the going interest rate on 3‐year government bonds is 4%, how much is the bond worth today?
a. The spot price of the British pound is currently $1.50. If the risk-free interest rate on 1-year government bonds is 1% in the United States and 2% in the United Kingdom, what must be the forward price of the pound for delivery one year from now?b. How could an investor make risk-free arbitrage profits if the forward price were higher than the price you gave in answer to part (a)? Give a numerical example.
The bank invests £15 million in a coupon bond issues by UK Treasury f) The coupon bond of point £15m pays a coupon of 4% per year, paid semi-annually. It has 2 years to maturity. If the current Yield-to-Maturity is 3.5% semi-annually, what is the price of the bond? g) A year later, the Bank of England is worried by rising inflation and announces its intention to raise interest rates. This announcement immediately sends the Yield-to-Maturity of bond in point (f) surging 300 basis points. Recalculate the price of the bond. h) What is the Holding Period Return recorded on the bond position over the past year? i) What is the Profit-and-Loss recorded on the bond position in Pound Sterling (£)? j) Record the result of point(g) in the T-accounts. k) If your result is a loss, please discuss if the bank has enough equity capital to support that loss. l) Please discuss the Basel Capital accords. Focus particularly on capital requirements and their calculation.
The government has issued a bond that will pay 2.000 in 10 years. The bond will pay no interim coupon payments. What is the present value of the bond if the discount rate is 12 percent?
Suppose a U.S. government bond promises to pay $2,249.73 three years from now.If the going interest rate on 3-year government bonds is 4%, how much is the bondworth today? How much is it worth today if the bond matured in 5 years rather than3? How much is it worth today if the interest rate on the 5-year bond was 6% ratherthan 4%? ($2,000, $1,849.11, $1,681.13)
The government has issued a zero coupon bond that will pay $1000 in 19 years. The bond will pay no interim coupon payment. What is the present value of the bond if the discount rate is 6.2%? Answer to 2 decimal places.
Suppose the spot price of the British pound is currently $1.50. If the risk-free interest rate on one-year government bonds is 4% in the United States and 3% in the United Kingdom, what must the forward price of the pound be for delivery one year from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
In the United Kingdom, the inflation rate is 1.8 per cent per year and that T-bills currently yield 2.1 per cent annually. What do you estimate the inflation rate to be in Australia if short-term Australian government securities yield 4 per cent per year?