Question: On October 5, 2019, you purchase a $

> Refer to Table 10–4. a. What was the settlement price on the December 2017 Eurodollar futures contract on August 3, 2016? b. How many five-year Treasury note futures contracts traded on August 2, 2016? c. What is the face value on a Swi

> Jones Bank has been borrowing in the U.S. markets and lending abroad, thereby incurring foreign exchange risk. In a recent transaction, it issued a one-year $5 million CD at 4 percent and is planning to fund a loan in yen at 6 percent for a 2 percent exp

> North Bank has been borrowing in the U.S. markets and lending abroad, thereby incurring foreign exchange risk. In a recent transaction, it issued a one-year $2 million CD at 6 percent and is planning to fund a loan in British pounds at 8 percent for a 2

> East Bank has purchased a 5 million one-year Swiss franc (Sf) loan that pays 6 percent interest annually. The spot rate of U.S. dollars for Swiss francs (CHF/USD) is 1.0175. It has funded this loan by accepting a Canadian dollar (C$)– denominated deposit

> Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.757/ A$1. It has funded this loan by accepting a British pound (BP)– deno

> Bankone issued $200 million worth of one-year CD liabilities in Brazilian reals at a rate of 6.50 percent. The exchange rate of U.S. dollars for Brazilian reals at the time of the transaction was $0.305/Br 1. a. Is Bankone exposed to an appreciation or d

> A bond you are evaluating has a 10 percent coupon rate (compounded semiannually), a $1,000 face value, and is 10 years from maturity. a. If the required rate of return on the bond is 6 percent, what is its fair present value? b. If the required rate of r

> Bank USA recently purchased $10 million worth of euro denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/€1. (LG 9-5) a. Is Bank USA exposed to an appreciation or depreciation of the

> On July 15, 2016, you convert 500,000 U.S. dollars to Japanese yen in the spot foreign exchange market and purchase a six-month forward contract to convert yen into dollars. How much will you receive in U.S. dollars at the end of six months? Use the data

> The following table lists balance of payment current accounts for Country A. a. What is Country A’s total current accounts? b. What is Country A’s balance on goods? c. What is Country A’s balance on

> Assume that annual interest rates are 5 percent in the United States and 4 percent in Turkey. An FI can borrow (by issuing CDs) or lend (by purchasing CDs) at these rates. The spot rate is $0.3310/Turkish lira (TL). a. If the forward rate is $0.3420/TL,

> Assume that annual interest rates are 8 percent in the United States and 4 percent in Switzerland. An FI can borrow (by issuing CDs) or lend (by purchasing CDs) at these rates. The spot rate is $1.02/Sf. a. If the forward rate is $1.08/Sf, how could the

> If a bundle of goods in Japan costs ¥4,000,000 while the same goods and services cost $40,000 in the United States, what is the current exchange rate of U.S. dollars for yen? If, over the next year, inflation is 6 percent in Japan and 10 percent in the U

> Refer to Table 9–1. a. On June 15, 2016, you purchased a British pound– denominated CD by converting $1 million to pounds at a rate of 0.7605 pound for U.S. dollars. It is now July 15, 2016. Has the U.S. dollar appreci

> Suppose all of the conditions in Problem 18 hold except that the forward rate of exchange is also $1.35/£1. How could an investor take advantage of this situation? Data from Problem 18: If the interest rate in the United Kingdom is 8 percent, the inter

> If the interest rate in the United Kingdom is 8 percent, the interest rate in the United States is 10 percent, the spot exchange rate is $1.35/£1, and interest rate parity holds, what must be the one-year forward exchange rate?

> Suppose that the current spot exchange rate of U.S. dollars for Australian dollars, SUS$/A$, is 0.757 (i.e., $0.757 can be received for 1 Australian dollar). The price of Australian- produced goods increases by 5 percent (i.e., inflation in Australia, IP

> Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1 R 1 = 6%, E( 2 r 1 ) = 7%, E( 3 r 1 ) = 7.5%, E( 4 r 1 ) = 7.85%

> The following are the foreign currency positions of an FI, expressed in the foreign currency: The exchange rate of dollars for Sf is 1.02, of dollars for British pound is 1.31, and of dollars for yen is 0.00953.The following are the foreign currency po

> P.J. Chase Stanley Bank holds $75 million in foreign exchange assets and $68 million in foreign exchange liabilities. P.J. Chase Stanley also conducted foreign currency trading activity in which it bought $165 million in foreign exchange contracts and so

> Citibank holds $23 million in foreign exchange assets and $18 million in foreign exchange liabilities. Citibank also conducted foreign currency trading activity in which it bought $5 million in foreign exchange contracts and sold $12 million in foreign e

> Suppose that, instead of funding the $200 million investment in 10 percent German loans with U.S. CDs, the FI manager in Problem 10 funds the German loans with $200 million equivalent one-year euro CDs at a rate of 7 percent. Now the balance sheet of the

> Suppose that a U.S. FI has the following assets and liabilities: The promised one-year U.S. CD rate is 4 percent, to be paid in dollars at the end of the year; one-year, default risk–free loans in the United States are yielding 6 per

> Refer to Table 9–1. a. What was the spot exchange rate of Canadian dollars for U.S. dollars (USD/CAD) on July 15, 2016? b. What was the six-month forward exchange rate of Canadian dollars for U.S. dollars (USD/CAD) on July 1

> Use the information in the following stock quote to calculate McKesson’s earnings per share over the last year. (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) Net 52 Week 52 Week YTD Name Symbol Open High Low Clo

> Refer to the stock market quote in Table 8–1. a. What was the closing stock price for Abercrombie & Fitch on July 6, 2016? b. What was the dividend yield on El Paso Electric stock as of July 7, 2016. c. What were the earnings per s

> Suppose you own 100,000 shares of common stock in a firm with 12.5 million total shares outstanding. The firm announces a plan to sell an additional 2.5 million shares through a rights offering. The market value of the stock is $22.50 before the rights o

> Suppose you own 50,000 shares of common stock in a firm with 2.5 million total shares outstanding. The firm announces a plan to sell an additional 1 million shares through a rights offering. The market value of the stock is $35 before the rights offering

> Suppose the Federal Reserve instructs the Trading Desk to purchase $1 billion of securities. Show the result of this transaction on the balance sheets of the Federal Reserve System and commercial banks.

> Suppose a firm has 50 million shares of common stock outstanding and eight candidates are up for election to six seats on the board of directors. a. If the firm uses cumulative voting to elect its board, what is the minimum number of votes needed to ensu

> Use the information in the following stock quote to calculate Abercrombie & Fitch’s earnings per share over the last year. (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) Net 52 Week 52 Week YTD Symbol Open Hi

> Suppose a firm has 15 million shares of common stock outstanding and six candidates are up for election to five seats on the board of directors a. If the firm uses cumulative voting to elect its board, what is the minimum number of votes needed to ensure

> You plan to purchase a $240,000 house using either a 30-year mortgage obtained from your local bank with a rate of 5.75 percent, or a 15-year mortgage with a rate of 5.00 percent. You will make a down payment of 20 percent of the purchase price. a. Calcu

> You plan to purchase a $200,000 house using either a 30-year mortgage obtained from your local savings bank with a rate of 7.25 percent, or a 15-year mortgage with a rate of 6.50 percent. You will make a down payment of 20 percent of the purchase price.

> You plan to purchase a $200,000 house using a 30-year mortgage obtained from your local credit union. The mortgage rate offered to you is 6.50 percent. You will make a down payment of 20 percent of the purchase price a. Calculate your monthly payments on

> You plan to purchase a $150,000 house using a 15-year mortgage obtained from your local credit union. The mortgage rate offered to you is 5.25 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments o

> You plan to purchase an $80,000 house using a 15-year mortgage obtained from your local bank. The mortgage rate offered to you is 8.00 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments on this m

> You plan to purchase a $175,000 house using a 15-year mortgage obtained from your local bank. The mortgage rate offered to you is 7.75 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments on this m

> You plan to purchase a $300,000 house using a 15-year mortgage obtained from your bank. The mortgage rate offered to you is 4.50 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments on this mortgag

> MHM Bank currently has $250 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Federal Reserve is increasing this requirement to 12 percent. a. Show the balance sheet of the Federal Reserve and MH

> You plan to purchase a $220,000 house using a 15-year mortgage obtained from your bank. The mortgage rate offered to you is 4.75 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments on this mortgag

> You plan to purchase a house for $175,000 using a 15-year mortgage obtained from your local bank. You will make a down payment of 25 percent of the purchase price. You will not pay off the mortgage early. a. Your bank offers you the following two options

> You plan to purchase a house for $195,000 using a 30-year mortgage obtained from your local bank. You will make a down payment of 20 percent of the purchase price. You will not pay off the mortgage early. a. Your bank offers you the following two options

> You plan to purchase a house for $115,000 using a 30-year mortgage obtained from your local bank. You will make a down payment of 20 percent of the purchase price. You will not pay off the mortgage early. a. Your bank offers you the following two options

> You plan to purchase a $100,000 house using a 30-year mortgage obtained from your local credit union. The mortgage rate offered to you is 8.25 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments

> A municipal bond you are considering as an investment currently pays a yield of 6.75 percent. a. Calculate the tax equivalent yield if your marginal tax rate is 28 percent. b. Calculate the tax equivalent yield if your marginal tax rate is 21 percent.

> Consider an investor who, on January 1, 2020, purchases a TIPS bond with an original principal of $100,000, a 4.50 percent annual (or 2.25 percent semiannual) coupon rate, and 5 years to maturity. (LG 6-2) a. If the semiannual inflation rate during the

> Consider an investor who, on January 1, 2019, purchases a TIPS bond with an original principal of $100,000, an 8 percent annual (or 4 percent semiannual) coupon rate, and 10 years to maturity. a. If the semiannual inflation rate during the first six mont

> On July 10, 2019, you purchase a $10,000 T-note that matures on December 31, 2028 (settlement occurs one day after purchase, so you receive actual ownership of the bond on July 11, 2019). The coupon rate on the T-note is 2.125 percent and the current pri

> National Bank currently has $500 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Federal Reserve is decreasing this requirement to 8 percent. a. Show the balance sheet of the Federal Reserve an

> Refer to Table 6–1. a. Verify the May 23, 2016, asked yield of 1.09 percent on the Treasury bond, stripped principal STRIPS maturing August 2019. Use a one-day settlement period from the date of purchase (i.e., ownership occurs on Wedne

> Gentherm Inc. has a convertible bond issue outstanding. Each bond, with a face value of $1,000, can be converted into common shares at a rate of 42.25 shares of stock per $1,000 face value bond (the conversion rate), or $19.85 per share. Gentherm’s commo

> Refer again to Table 6–1. a. Verify the asked price on the 0.875 percent November 30, 2017 T-note for Monday, May 23, 2016. The asked yield on the note is 0.849 percent and the note matures on November 30, 2017. Settlement occurs one b

> Hilton Hotels Corp. has a convertible bond issue outstanding. Each bond, with a face value of $1,000, can be converted into common shares at a rate of 61.2983 shares of stock per $1,000 face value bond (the conversion rate), or $16.316 per share. Hilton’

> A $1,000 face value corporate bond with a 6.75 percent coupon (paid semiannually) has 10 years left to maturity. It has had a credit rating of BB and a yield to maturity of 8.2 percent. The firm recently became more financially stable and the rating agen

> A $1,000 face value corporate bond with a 6.5 percent coupon (paid semiannually) has 15 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 7.2 percent. The firm has recently gotten into some trouble and the rating agency

> Refer to Table 6–7. a. What was the closing price on the Chevron 2.954 percent coupon bonds on Monday, May 23, 2016? b. What was the S&P bond rating on Walgreens 3.800 percent coupon bonds maturing in 2024 on May 23, 2016? c. What w

> You can purchase a T-bill that is 95 days from maturity for $9,965. The T-bill has a face value of $10,000. a. Calculate the T-bill’s quoted yield. b. Calculate the T-bill’s bond equivalent yield. c. Calculate the T-bill’s EAR.

> You have just purchased a three-month, $500,000 negotiable CD, which will pay a 5.5 percent annual interest rate. a. If the market rate on the CD rises to 6 percent, what is its current market value? b. If the market rate on the CD falls to 5.25 percent,

> MLK Bank has an asset portfolio that consists of $100 million of 30-year, 8 percent annual coupon, $1,000 bonds that sell at par. a. What will be the bonds’ new prices if market yields change immediately by ± 0.10 percent? What will be the new prices if

> BSW Bank currently has $150 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 10 percent of transaction deposits. a. If the Federal Reserve decreases the reserve requirement to 6 percen

> An insurance company is analyzing the following three bonds, each with five years to maturity, annual interest payments, and is using duration as its measure of interest rate risk: a. $10,000 par value, coupon rate = 8%, rb = 0.10 b. $10,000 par value, c

> Suppose that you purchase a bond that matures in five years and pays a 13.76 percent annual coupon rate. The bond is priced to yield 10 percent. a. Show that the duration is equal to four years. b. Show that if interest rates rise to 11 percent next year

> What should happen to a security’s nominal interest rate as the security’s liquidity risk increases?

> If we observe a one-year Treasury security rate higher than the two-year Treasury security rate, what can we infer about the one-year rate expected one year from now?

> If a U.S. bank is holding Japanese yen in its portfolio, what type of exchange rate movement would the bank be most concerned about?

> Which of the capital market instruments is the largest in terms of dollar amount outstanding in 2016?

> What are the major instruments traded in capital markets?

> A bank has issued a six-month, $5 million negotiable CD with a 0.35 percent quoted annual interest rate (iCD, sp). a. Calculate the bond equivalent yield and the EAR on the CD. b. How much will the negotiable CD holder receive at maturity? c. Immediately

> Which of the money market instruments is the largest in terms of dollar amount outstanding in 2016

> What is meant by the term depository institution? How does a depository institution differ from an industrial corporation?

> What are the main advantages of being a member of the Federal Reserve System?

> What has been the recent trend in the number of commercial banks in the United States? What factors account for this trend?

> What countries have the largest commercial banks?

> What countries have the most international debt securities outstanding?

> What is the meaning of a Treasury bond futures price quote of 103-13?

> Classify the following financial instruments as money market securities or capital market securities: a. Banker’s acceptances b. Commercial paper c. Common stock d. Corporate bonds e. Mortgages f. Negotiable certificates of deposit g. Repurchase agreemen

> An American firm has British pound–denominated accounts payable on its balance sheet. Managers believe the exchange rate of British pounds to U.S. dollars will depreciate before the accounts will be paid. What type of currency swap should the firm enter?

> A commercial bank has fixed-rate, long-term loans in its asset portfolio and variable-rate CDs in its liability portfolio. Bank managers believe interest rates will increase in the future. What side of a fixed-floating rate swap would the commercial bank

> Consider the following. a. What is the duration of a four-year Treasury bond with a 10 percent semiannual coupon selling at par? b. What is the duration of a three-year Treasury bond with a 10 percent semiannual coupon selling at par? c. What is the dura

> What is a swap?

> What is the difference between an interest rate swap and a currency swap?

> One form of the interest rate parity equation appears as 1 + rUSt = (1/St) × (1 + rUKt) × Ft where both the spot and forward rates are expressed in terms of dollars for pounds or direct exchange rates. How would the equation be written if the exchange ra

> What are some reasons why interest rate parity may not hold in spite of the economic forces that should ensure the equilibrium relationship?

> Which type of bond—a mortgage bond, a debenture, or a subordinated debenture—generally has the a. Highest cost to the bond issuer? b. Least risk to the bond holder? c. Highest yield to the bond holder?

> What is the economic meaning of duration?

> When is a futures or option trader in a long versus a short position in the derivative contract?

> For each of the following situations, identify whether a bond would be considered a premium bond, a discount bond, or a par bond. (LG 3-2) a. A bond’s current market price is greater than its face value. b. A bond’s coupon rate is equal to its yield to m

> Classify the following transactions as taking place in the primary or secondary markets: a. IBM issues $200 million of new common stock. b. The New Company issues $50 million of common stock in an IPO. c. IBM sells $5 million of GM preferred stock out of

> You have purchased a put option on Pfizer common stock. The option has an exercise price of $27 and Pfizer’s stock currently trades at $29. The option premium is $0.50 per contract. a. What is your net profit on the option if Pfizer’s stock price does no

> A bank has issued a six-month, $2 million negotiable CD with a 0.52 percent quoted annual interest rate (iCD, sp). a. Calculate the bond equivalent yield and the EAR on the CD. b. How much will the negotiable CD holder receive at maturity? c. Immediately

> At the beginning of the quarter, you purchased a $100,000 Treasury bond futures contract for 108-12. Calculate the profit on the futures contract if the price at the end of the quarter is 106-16, 108-20, 110-8, and 112-02. Price at Price at = The Pr

> A stock is currently selling for $75 per share. You could purchase a call with a strike price of $70 for $7. You could purchase a put with a strike price of $70 for $2. Calculate the intrinsic value of the call option.

> You buy an at-the-money March call option on MMC Corp. common stock, which has a strike price of 15 and a premium of 2.83. What must happen to the price of MMC Corp. stock for you to make a profit?

> X-IM Bank has ¥14 million in assets and ¥23 million in liabilities and has sold ¥8 million in foreign currency trading. What is the net exposure for X-IM? For what type of exchange rate movement does this exposure put the bank at risk?

> Suppose that on January 18, 2019, a U.S. firm plans to purchase 3 million euros’ (€) worth of French bonds from a French FI in one month’s time. The French FI wants payment in euros. Thus, the U.S. fir

> At the beginning of the year, you purchased a share of stock for $50. Over the year the dividends paid on the stock were $4.50 per share. Calculate the return if the price of the stock at the end of the year is $40, $48, $50, and $55. Price at Price

> At the beginning of the year, you purchased a share of stock for $35. Over the year the dividends paid on the stock were $2.75 per share a. Calculate the return if the price of the stock at the end of the year is $30. b. Calculate the return if the price

> Refer to the stock market quote in Table 8–1. a. What was the closing stock price for Abbott Laboratories on July 7, 2016? b. What were the high and low prices at which McDonald’s traded between July 7, 2015, and July

> What is the monthly payment on a $150,000, 30-year mortgage if the mortgage rate is 5.75 percent? 6.25 percent? 7.5 percent? 9 percent? Present Interest The Payment Periods Value Rate Will Be $150,000 30 x 12 5.75%/12 $ 875.3