Comm 298 Past Midterm2.1

Comm 298 Past Midterm2.1 - __ , _...

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Unformatted text preview: __ , _ fitémat-flae-Aeme-Aecounfing firm, Cemmeme-waetotd-the y tissue or. ' Fal Government is planning to issue a new 2-year bond Match pays annual GOUpons of. has aface value of $4,000. They plan to offer this bond at a price of $4,050.00. The government has asked us to check if this new bond is priced fairly or whether or not a possible , arbitrage opportunity exists.” _ There are-currently two other GeVemment of Canada Bonds trading in the marketplace; - ‘ __ :2 to maturity, .= $ 935.93. . flab-annealefifiem, vatue =2: $4 2 years to maturity, current-meg: “[81671- H , . Acs'fl’é? Adfimafl * i" s- _ “flax-r: afie’fikvi U r 7105;55sz Mfr/:ffiffith/‘j? - 77M? adobe: 90% 155;», (a) is meant. by the term arbitrage? f g, ‘ e ' a v 49, '._ D M {a 'é Lat gum {ii/1: git-éfif'ef :" Fraabxfi'f’ J r ' r! U L} a, I g-«u ff 915:}- ; " MW «e r 7- .,= _, M; risk -. b;er fprerte-ehnicaue and prev-Me _ z . . you" ' answer. "I1 {\Je‘w", bfi‘iflg‘z 7' g f} __, (“5 1" fi- -¢‘~‘;§E»“-=”{ 3“ (3‘ tie at 4 {:03 = 2m it.“ 4M4 15w? = 57%. :fi.‘ gs. Eomfi‘l 55‘1ng 4 {95% : Q’Ww 1%. Home; sngm auto {3) a» eff/71.1 50(5) :Zée 5w . _ x = -v/ "' 69 Z; - lfyo'u more” room, phase use the back of this page. ' ‘~ Page 9 of 9 — (a) (b) (1 mark) When soiving Time Value of Money questions, explain why it_ .is important to subécript your PV or W notation. 7 fl (€55 CLO ‘ r . g (r _ , ,3}? r J} Gk (' if,ng u—g' f L1; rung“ x’i -’ “ - r" . jay-r r" , a; L2 -“ w 1 - 15%;”: ,2 I : - u 5 f”, g .. "‘7 !' K .i r. " r ' -€:'§‘/‘/~. away-:51? c2 32/}, am as}; i“ v 9 H '5 ‘ ' ‘ q (4, Entranee Schoiarship can bepaid out in four equal $1,006 amounts at the beginan of egaflacademic year OR can be paid as a single “lump sum” amount at the-eeginming of if the appropriate discount rate is 5% per year, determine the i of £19133 “lump‘ésum' pa-ymen: -t. ‘ I ‘ z .- . _ - a PU C s?- 'C"“G*““>_"7‘T> 0 g. Pagelof9 (i) (1 mark) canpn rate ofithis-band‘? ' _ (ii) (2 ma “5 “Eh/C. (great; {a W—{Ufn 1'» I” £13937 . 473M Below is a time line of a Canada Bond with the Mg coupons paid semi-annuaily and $1,060 face value as shown: 40 40 40 40 40 hf = "' —' -“ If . . _. "0 if L'- _ Your answer: atTimeo = $916, then the of {his is: I ‘_ W; 0m: .- {mg (radix: 4:1” 7.4% and 8% 2x42, - .4 27. (Elflafie-éthan-EFA g,» W (A r27 Yam'an‘swer: If) 5’7 VF] A \/r1 ‘ 1-93 :05- .)c _ 8 equal monthly payments at the interest rate of 9% ly payments would begin in one month. ' " 'r Finance the car loan with 4 compounded quarterly. Month (3) ' (6 marks) Determine the monthly payment owed to Venture. *9 -- TI? '14?“ = a? 5" “3 ; L‘ g _?U!I9!m " ' m_,' @5555" 5C 7c ; Affine “’1‘ (‘1) phones are risen since- compounded monthly. that the loan is “35339 mentth V r. : g u.) e. WK (8 marks) Since Darre [91 093’ ‘” 1'0 und to many Bill bought the ear and Fefiunateiy, nab” VFC VI 7 n doe-s net have em different lenders an ie",.whieh means that Darren can car from Bill, he interest rates have . Darren n get is 12% per year, Sui-’5 loan from Venture is take over the 33 remaining ugh cash to purchase the d finds that, unfortunately, the best rate one of the features with F ii - I} . a’V-J’g'i‘fi‘i r 2;: “_ {:7 _ r ‘ v: .523 & § 23,“??Lé? f ?age 5 of 9 ' .j: 7 _ . '_f . é'jle Tr ' ' ‘m-athe'rfimt at-fhre beginning beginning of the 3" then at the binning t e for a total of 19 monthly payments. 3 _ - e". The winner-“viii receive $x at the I the-next menth. then $x at the 4‘“ month. This pattern will continue (a) (3 marks) Draw an accurate time line which cle r aw?» ‘ 2: 3 cf _ _H ’0‘ . O I Z _ 3 __ ; in a} g ‘ “Will I 7 ,, 3f '2): 54' 1,1 ~_‘.‘ Pagesofé ,. ., :o-matunty a! thé time Rab I a fight if, 5 ' ' - annually, and a yield to maturity (YTM). of 7.5%, Over her seven year holding period,- Ruby de' .0 5 coupon payments in a bank account earning 3.6% sum as — it! (a) (5 marks) Calculate the at Ruling; sells the bomoday. —N " am; I 1Q+rmw 27:7“ C = {9:0 x *3 3 3 a. I \17‘4 «as ~01 ” Tfiam=a..o~m (- i. was WM) 7 :— fig 5r Ham—mun. . cm a "f r 7 _ Lyifgn : fi7fi1.exl/ ' u i QM M ~- gag-gin. Maggi 'g.¢aeg;? Iii! earmaramxk ( 0L 061,54‘55‘55 figflwS‘ (Li. {campsite-2gp . J J Hiya-ram” - . J —" . r .) Calculate Ruby’s realized hoidirig period rate of return (ROR) on this bond . e‘nét.‘ Haw'essitt-me- to the bond'rs purchase date YTM of-7.5%? Please : brief omit: expianatien for your result. (91)- 5.... in?!” WWW if; m zi- 3’2 , Ha” PE: ;'V*«5-$‘7£“°”’!0 é“: if”: {’afiffa‘fi'i’! M”? g fiflr JE’ a}? 4 5- 5L \f/ I ' 3.55 54/ Pages of 9 ...
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Comm 298 Past Midterm2.1 - __ , _...

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