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Unformatted text preview: __ , _ ﬁtématﬂaeAemeAecounﬁng ﬁrm, Cemmemewaetotdthe y tissue or. ' Fal Government is planning to issue a new 2year 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 arecurrently two other GeVemment of Canada Bonds trading in the marketplace;  ‘ __ :2 to maturity, .= $ 935.93. . ﬂabannealeﬁﬁem, vatue =2: $4 2 years to maturity, currentmeg: “[81671 H , . Acs'ﬂ’é?
Adﬁmaﬂ * i" s _ “ﬂaxr: 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: gitéﬁf'ef :" Fraabxﬁ'f’
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g«u ff 915:} ; " MW «e r 7 .,= _, M; risk . b;er fprerteehnicaue and prevMe _ 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
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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
theeeginming of if the appropriate discount rate is 5% per year, determine the i of £19133 “lump‘ésum' paymen: t. ‘ I ‘ z . . _  a
PU C s? 'C"“G*““>_"7‘T> 0 g. Pagelof9 (i) (1 mark) canpn rate ofithisband‘? ' _ (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 semiannuaily 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.
(ElﬂaﬁeéthanEFA g,» W (A r27 Yam'an‘swer: If) 5’7 VF] A \/r1
‘ 193 :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 does 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’VJ’g'i‘ﬁ‘i r 2;: “_ {:7 _ r ‘ v: .523 &
§ 23,“??Lé? f ?age 5 of 9 ' .j: 7 _ . '_f . é'jle Tr ' ' ‘mathe'rﬁmt atfhre 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
thenext menth. then $x at the
4‘“ month. This pattern will continue (a) (3 marks) Draw an accurate time line which cle r aw?» ‘ 2: 3 cf _ _H ’0‘
. O I Z _ 3 __ ;
in a} g ‘ “Will I 7
,, 3f '2): 54' 1,1 ~_‘.‘ Pagesofé ,. ., :omatunty a! thé time Rab I a ﬁght if, 5 ' ' 
annually, and a yield to maturity (YTM). of 7.5%, Over her seven year holding period, Ruby de' .0 5 coupon payments in a bank
account earning 3.6% sum as — it! (a) (5 marks) Calculate the at Ruling; sells the bomoday. —N " am;
I 1Q+rmw 27:7“ C = {9:0 x *3 3 3 a.
I \17‘4 «as
~01 ” Tﬁam=a..o~m
( i. was WM) 7
:— ﬁg 5r Ham—mun. . cm a "f r 7 _ Lyifgn
: ﬁ7ﬁ1.exl/ ' u i QM M ~ gaggin. Maggi 'g.¢aeg;? Iii! earmaramxk ( 0L 061,54‘55‘55 ﬁgﬂwS‘ (Li. {campsite2gp
. J J Hiyaram”  . J —" . r .) Calculate Ruby’s realized hoidirig period rate of return (ROR) on this bond
. e‘nét.‘ Haw'essittme to the bond'rs purchase date YTM of7.5%? Please
: brief omit: expianatien for your result. (91) 5.... in?!” WWW if; m zi 3’2 , Ha” PE: ;'V*«5$‘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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 Spring '10
 BRIANGRAHAM

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