Questions from Financial Markets

Q: A particular security’s equilibrium rate of return is 8 percent. For

A particular security’s equilibrium rate of return is 8 percent. For all securities, the inflation risk premium is 1.75 percent and the real risk-free rate is 3.5 percent. The security’s liquidity ris...

Q: Calculate the yield to maturity on the following bonds: a

Calculate the yield to maturity on the following bonds: a. A 9 percent coupon (paid semiannually) bond, with a $1,000 face value and 15 years remaining to maturity. The bond is selling at $985. b. An...

Q: An FI has purchased a $200 million cap of 9 percent

An FI has purchased a $200 million cap of 9 percent at a premium of 0.65 percent of face value. A $200 million floor of 4 percent is also available at a premium of 0.69 percent of face value. a. If i...

Q: An insurance company owns $50 million of floating-rate bonds

An insurance company owns $50 million of floating-rate bonds yielding LIBOR plus 1 percent. These loans are financed with $50 million of fixed-rate guaranteed investment contracts (GICs) costing 10 pe...

Q: A commercial bank has $200 million of floating-rate loans

A commercial bank has $200 million of floating-rate loans yielding the T-bill rate plus 2 percent. These loans are financed with $200 million of fixed-rate deposits costing 9 percent. A savings bank h...

Q: Consider the following two financial institutions: /

Consider the following two financial institutions: Managers of the money center bank are concerned that interest rates may fall over the next four years, while managers of the savings bank are conce...

Q: Suppose you purchase a Treasury bond futures contract at a price of

Suppose you purchase a Treasury bond futures contract at a price of 95 percent of the face value, $100,000. a. What is your obligation when you purchase this futures contract? b. Assume that the Treas...

Q: Consider the following two financial institutions: /

Consider the following two financial institutions: Managers of the bank are concerned that interest rates may fall over the next four years, while managers of the savings association are concerned t...

Q: Tree Row Bank wishes to take a position in Treasury bond futures

Tree Row Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 95-040. Tree Row thinks interest rates will go up over the period of investment. a. Should t...

Q: Dudley Savings Bank wishes to take a position in Treasury bond futures

Dudley Savings Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 105100. Dudley Savings thinks interest rates will go down over the period of investmen...