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Download and read this document by clicking on http://www.citibank.com/transactionservices/home/oli/files/ABCP_Primer_0211.pdf 1. What are the

Download and read this document by clicking on http://www.citibank.com/transactionservices/home/oli/files/ABCP_Primer_0211.pdf

1.      What are the underlying assets in Asset-Backed Commercial Paper? List 2 or more.

2.      Is Asset-Backed Commercial Paper (ABCP) secured or unsecured?

3.      Why does offer higher yields than traditional commercial paper to investors ?

4.      What is the role of ABCP conduit?

5.      Given an example of seller in the ABCP conduit (listed in the graph on page 2)

6.      What is the role of credit enhancement provider?


You would need your financial calculator for Chapter 03 lecture and assignments

Bond Interest Rate Risk

bond A

Coupon rate

9.0%

Payment frequency/year

               2

Face value

 1,000.00

Current required rate of return

7%

Time to Maturity (year)

               5

Bond Price

 

rate rises

0.50%

Bond Price (new)

 

Percentage change in bond price

 

rate falls

-0.50%

Bond Price (new)

 

Percentage change in bond price

 







A semi-annual coupon paying bond,

Annual Coupon Rate

6.00%

Payment per year

2

Face Value

Years to maturity

$1,000

6

Required return (APR)

5.00%

Duration = 5.152 years

1.      If the market rate rises by 0.25%, use TVM to compute new bond price, and % change in bond price




2.      Use to calculate % change in bond price




3.      Compare 1 vs. 2





4.      If the market rate rises by 0.75%,, use TVM to compute % change in bond price




5.      Use to calculate % change in bond price





6.      Compare 3 vs. 4

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