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Find out the adjusted for inflation

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Reference no: EM133057428

1. You are the holder of a Zero Coupon bond issued by the ABC company with a maturity of 10 years from its issuance. The bond was issued 3 years ago with an IRR of 5%, the date on which you decided to buy it. The NPV is USD 1,000,000.

a) At what price did you buy it?

Today, after the ABC financial statements and their projections were revealed, the yield of the ABC Zero Coupon bond with a 7-year maturity increased by 30%

b. Are you happy with this situation? Justify

2. You have to buy dollars at 11 am to pay a foreign supplier. The observed dollar is at 791.71, while the spot points are at 788.5 - 790.5. At what price do you have to buy? Why?

6. Real rates are interest or return rates that have not been adjusted for inflation while nominal rates are interest or return rates that have been adjusted for inflation. Comment

7. Due to the risk investors accept when lending their money, the only additional compensation they demand is the inflation premium. Comment.

Reference no: EM133057428

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