practicemidtermw12sol

practicemidtermw12sol - $993.60 mln 3 $400 mln $0.9925...

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Solutions to Mid-term Exam MULTIPLE CHOICE- 10 marks [1 mark each] 1) D 2) E 3) D 4) D) 5) C 6) D 7) D 8) D 9) A 10) B) PROBLEMS 1. [3 marks] First, solve the one-year spot rate $90.19 = 100/(1+ oR1) oR1≈ .10877 or 10.877% Then use the information above to solve the 2-year spot : [3 marks] 1000 = 100/(1.10877) + 1100/(1+oR2) 2 oR2≈.0995 And the implied one-year rate ≈ 0.0903 or 9.03% [4 marks] 2. [10 marks ] a . Assume $100 par value each security CP : .6.0310 % = - 91 360 * 100 100 0 B to get B = 98.4755 and EAY= (100/98.4755) 365/91 -1= 6.3556% CD RV = 100 ( 1 +.06*91/360)= 101.51667 and EAY = (101.51667/100) 365/91 -1 = 6.224% CP has the highest yield. b. other factors : Liquidity, default 3. a. [3 marks] If only the competitive bids are received, the following bids, quantities, and prices will be awarded: Bidder Bid Amount Price Amount Paid 1 $500 mln $0.9940 $497.00 mln 5 $600 mln $0.9939 $596.34 mln 4 $1 bln $0.9936
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Unformatted text preview: $993.60 mln 3 $400 mln $0.9925 $397.00 mln b. [4 marks] If $750 million in noncompetitive bids are also received, the following bids, quantities, and prices will be awarded: Competitive Bids Bidder Bid Amount Price Amount Paid 1 $500 mln $0.9940 $497.00 mln 5 $600 mln $0.9939 $596.34 mln 4 $650 mln $0.9936 $645.84 mln Noncompetitive Bids $750 mln $0.9938 * $745.35 mln Where Non-competitive price = 500/1750 0.9940 + 600/1750 0.9939 + 650/1750 0.9936= $0.9938 [3 marks] Yield earned by non-competitive bidders = [(100-.9938)/.9938] x 365/91 = . 025023 or 2.5023% 1 4. a.[5 marks] the 6-month bond has only one cash flow and is effectively a zero coupon, its YTM equals the 6-month spot rate of 8%. . Because the bond trades at par, the coupon rate =YTM=8%. b. [5 marks] The bond is trading at discount, then Coupon rate < YTM=7.51%, 2...
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This note was uploaded on 02/28/2012 for the course FINE 442 taught by Professor Larbihammami during the Spring '12 term at McGill.

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practicemidtermw12sol - $993.60 mln 3 $400 mln $0.9925...

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