Government offers two types of one-year discount bonds

Assignment Help Financial Management

Reference no: EM131931891

Imagine that the Korean government offers two types of one-year discount bonds in December 2017. The type A discount bond is a usual discount bond and pays its face value of 10 million won in December 2018. In December 2018, a holder of the type B discount bond will receive its face value of 10 million won and will be given a right to buy a three-year government bond directly from the government at a government price which is cheaper than the market price: the government price will be set at the market price of the three-year bond in December 2018 minus 1.5 mion won. The holder can sell the bond immediately if he wants. Suppose that the market price of the type B discount bond is 10.7 million won in December 2017.

(1) What is the equilibrium price for the type A discount bond in December 2017.

(2) What is the yield to maturity on the type B discount bond in December 2017.

(3) What is the one year interest rate (that is used for present value formula) in December 2017. Explain vour answers.

Reference no: EM131931891

Questions Cloud

What is its bond equivalent yield-what is its current yield : If the face value is $10,000, what is the price? What is its bond equivalent yield? What is its current yield?

What would be your return on investment : If, after one year, the price fell to $70 and a dividend of $5/share was paid, what would be your return on investment?

Which is the better investment after five years : If both funds’ portfolios have an average return of 12%, which is the better investment after 5 years given an initial investment of $5,000?

Student loans-what is loan balance after the grace period : What is the loan balance after the grace period? If Nolan decides to pay an additional $50 per payment, how many payments will amortize the debt?

Government offers two types of one-year discount bonds : Imagine that the Korean government offers two types of one-year discount bonds in December 2017.

What is the portfolio turnover ratio : What is the net asset value (NAV)? What is the portfolio turnover ratio?

At what price would you receive margin call : At what price would you receive a margin call? If, after one year, the price increased to $20 a share, what would be your rate of return?

Which is the better investment after five years : If both funds’ portfolios have an average return of 12%, which is the better investment after 5 years given an initial investment of $5,000?

Constraint the payments of dividends : What are the 3 variables that can constraint the payments of dividends?

User Account

All Pages