What is the arbitrage profit as percentage of par

Assignment Help Financial Management
Reference no: EM131825329

1. A 5-year zero coupon bond is stated to yield 10% continuously compounded return for the entire period (holding period return over 5 years) in market A. The same bond is quoted 2% per annum with annual compounding in Market B. Where is the bond cheaper and what is the arbitrage profit as a percentage of Par.

a. Cheaper in Market A and the arbitrage profit is 0.06734%

b. Cheaper in Market B and the arbitrage profit is 0.08934%

c. Both prices are equal; there is no arbitrage

d. Cheaper in Market A and the arbitrage profit is 0.08934%

e. Cheaper in Market B and the arbitrage profit is 0.06734%

2. The present value (t=0) of the following cash flow stream is $5,979.04 when discounted at 12 percent annually. What is the value of the missing (t=2) cash flow?

Period 1= $1,000

Period 2=?

Period 3= $2,000

Period 4= $2,000

Reference no: EM131825329

Questions Cloud

What was GEs book debt-equity ratio : What was GE's book debt-equity ratio? What was GE's market, debt-equity ratio? What was GE's enterprise value?
Bond has convexity : If a bond has a convexity of 60 and a modified duration of 10, the convexity adjustment a for a 25 basis point drop in interest rate is closest to
An amortizing security has more reinvestment risk : An amortizing security has more reinvestment risk and more interest rate risk than a comparable Zero-Coupon bond. This statement is most likely
What would be annualized rate of return : Suppose you invest $ 2736 today to start a business. In 9 years you hope to sell this company for $ 19281. What would be your annualized rate of return?
What is the arbitrage profit as percentage of par : The same bond is quoted 2% per annum with annual compounding in Market B. Where is the bond cheaper and what is the arbitrage profit as a percentage of Par.
Create risk free position of spot assets and call options : How do you create a risk free position of spot assets and call options?
Calculate the duration of each method of investment : Assuming all types of lending compound at annual frequency, calculate the duration of each method of investment.
Investment annual rate of return risk : Because cash is held in money market fund, annual return is lower. What is the annual rate of return and the total risk for the optimal portfolio?
Use falsification exercise : To test you findings, you use a “falsification exercise”, you observe the new car purchasing behavior of families with children graduating in 2015.

Reviews

Write a Review

Financial Management Questions & Answers

  Assuming that both investments have the same risk

You are comparing two investment options: Assuming that both investments have the same risk, the bond is valued fairly

  Determine hurdle rate for the entire company

System employed 100 people and manufactured high quality storage units made from aluminum, plastic, and wood. The Government division accounted for around 75% of the sales volume, while the other two divisions split the balance. Determine the hurdle ..

  Difference in present value between using a discount rate

You are going to receive $205,000 in 50 years. What is the difference in present value between using a discount rate of 14 percent versus 9 percent? Use Appendix B as an approximate answer, but calculate your final answer using the formula and financ..

  Debt security is a claim on a mortgage pool

A debt security is a claim on a mortgage pool (e.g., a Ginnie Mae pass-through security)with a face value of $100,000. The mortgages pay 9 percent and have an expected life of 20 years. Currently, interest rates are 9 percent. If you purchase the sec..

  Statements about cost-of-equity estimation

Which of the following statements about cost-of-equity estimation is most correct?

  Nature products is considering new project

Nature Products is considering a new project. The initial investment required is $1,350,000. Assume a relevant discount rate of 14%:

  Use when faced with nonconventional cash flow

Which tool(s) should we use when faced with nonconventional cash flow? Also, NPV is conceptually the best tool for capital budgeting. Why do you think firms continue to practice the others?

  What is the APR and EAR of your investment

You bought a stock four months ago for $74.32 per share. The stock paid no dividends. The current share price is $76.84. What is the APR and EAR of your investment? (Do not round intermediate calculations. Enter your answers as a percentage rounded t..

  Treasury bill is generally used as the measure

The market return on the U.S. Treasury bill is generally used as the measure of the:

  Forward hedge or a money market hedge

Alpha Company, U.S.-based manufacturer of industrial equipment, just purchased a Korean company that produces plastic nuts and bolts for heavy equipment. Alpha's weighted average cost of capital is 10%. Given this information, determine whether a for..

  What is the future value of inheritance at retirement

You believe you will need to have saved $500,000 by the time you retire in 40 years in order to live comfortably. You also believe that you will inherit $100,000 in 10 years. If the interest rate is 6% per year, what is the future value of your inher..

  Difference between the largest and the smallest data values

A numerical value used as a summary measure for a sample, such as sample mean, is known as a. The difference between the largest and the smallest data values is the. The numerical value of the standard deviation can never be. Which of the following s..

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!

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