User Account

All Pages

Calculate zero rates for maturities of months

Assignment Help Finance Basics
Reference no: EM133072366

Question 1.     

The following table gives the price of bonds:

Bond Principal ($)

Time To Maturity (Months)

Annual Coupon Rate (%)

Bond Price ($)

100

6

0.0

96

100

12

0.0

90

100

18

8.0

95

Half the stated coupon is assumed to be paid every six months. Use semi-annual compounding as interest rate measurement.

Part I.

Calculate (annualized) zero rates for maturities of 6 months, 12 months and 18 months.

Part II.

What is the fair price of 18-months zero-coupon bond given current term structure of zero rates? The par value of bond is assumed to be $100.

Part III. 

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.

Reference no: EM133072366

Questions Cloud

Define health communication : What may this person consider to be benefits of taking action to reduce or stop behaviors that perpetuate the health condition?
Discuss scope and nature of the risk behavior : Discuss the scope and nature of the risk behavior requiring change (Pregnancy). Identify the affected population and community for the proposed program
Risk- free rate on the treasury securities : The total market value of Biz Tech shares is $60 million, and the total market value of its debt is $40 million. The treasurer estimates that the beta of the sh
What is the correct entry for Flores on November : Flores Mills sold carpet to a customer for $8,400 with credit terms 1/10, n/30. What is the correct entry for Flores on November 10
Calculate zero rates for maturities of months : Calculate (annualized) zero rates for maturities of 6 months, 12 months and 18 months.
Chances of career or life success : Discuss how the concepts in this course can be applied to real-world situations and increase your chances of career or life success.
What types of epidemiologic research : What types of epidemiologic research could help to explain the reasons for the new mortality trend? In your one- to two-page journal entry,
Find shareholder returns and risk : Consider two firms with identical assets structures and operating characteristics: ABN and RPO. Both companies sell the same product and face the same distribut
What amount of income can the company expect to earn : What amount of income can the company expect to earn under these predicted changes? Prepare a contribution margin income statement for the next year

Reviews

Write a Review

Finance Basics Questions & Answers

  Design carry trade strategies exploring interest rate

Design carry trade strategies exploring interest rate differences between two countries. Calculate the profit to such strategies and discuss how changes in exch

  Investigates data to render a professional opinion on

an auditor does not prepare financial statements but instead samples and investigates data to render a professional

  Find levered cost of equity equal

You have the following initial information on which to base your calculations and discussion:Debt yield = 2.5%

  Calculate selling price on the margins provided

As the Marketing Manager for the Zig brand of microwave ovens in a large customer products company you must answer questions found below with following financial data regarding product.

  What is your net new financing needed for next year

For the next fiscal year, you forecast net income of $51, 500 and ending assets of $506, 100. Your firm's payout ratio is 9.7%. Your beginning stockholders'.

  What is the agency enterprise value if it carries no cash

These bonds are trading at 102. The agency's stock has a price-earning (P/E) ratio of 25. Its earnings per share were $2.00 last year with 1 million shares

  On this basis , find the replacement strategy.

A widget manufacturer operates two machines , each of which has a capacity of 1000 units a year. They have an indefinite life and zero salvage value. The operating cost is $2 per widget. Widget is a seasonal business.

  Calculate monthly payments

Tim borrowed $25,000 at a rate of 8.64% compounded semi-annually (j2). Calculate his monthly payments if he amortizes his payments over 5 years.

  What is the yield

Assume an investor purchased a 6-month T-bill with a $10,000 par value for $9,000 and sold it 90 days later for $9,100. What is the yield

  What is the fund required rate of return

If the market's required rate of return is 13% and the risk-free rate is 3%, what is the fund's required rate of return? Round your answer to two decimal places.

  The organization is planning to implement a company-wide

your organization is a manufacturing company with employees in the following provincesnew found land and labradornova

  Fargo memorial hospital has annual patient service revenues

Fargo Memorial Hospital has annual patient service revenues of $14,400,000. It has two major third-party payers, and some of its patients are self-payers. The hospital's patient accounts manager estimates that 10 percent of the hospital's billings ar..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd