Question 25 bond pricing, zero coupon bond, term structure of interest rates, forward interest rate
A European company just issued two bonds, a
- 2 year zero coupon bond at a yield of 8% pa, and a
- 3 year zero coupon bond at a yield of 10% pa.
What is the company's forward rate over the third year (from t=2 to t=3)? Give your answer as an effective annual rate, which is how the above bond yields are quoted.
A newly floated farming company is financed with senior bonds, junior bonds, cumulative non-voting preferred stock and common stock. The new company has no retained profits and due to floods it was unable to record any revenues this year, leading to a loss. The firm is not bankrupt yet since it still has substantial contributed equity (same as paid-up capital).
On which securities must it pay interest or dividend payments in this terrible financial year?
In the dividend discount model:
### P_0= \frac{d_1}{r-g} ###
The pronumeral ##g## is supposed to be the:
An Apple iPhone 6 smart phone can be bought now for $999. An Android Samsung Galaxy 5 smart phone can be bought now for $599.
If the Samsung phone lasts for four years, approximately how long must the Apple phone last for to have the same equivalent annual cost?
Assume that both phones have equivalent features besides their lifetimes, that both are worthless once they've outlasted their life, the discount rate is 10% pa given as an effective annual rate, and there are no extra costs or benefits from either phone.
If trader A has sold the right that allows counterparty B to buy the underlying asset from him at maturity if counterparty B wants then trader A is:
An equity index is currently at 5,000 points. The 2 year futures price is 5,400 points and the total required return is 8% pa with continuous compounding. Each index point is worth $25.
What is the implied continuous dividend yield as a continuously compounded rate per annum?
Question 691 continuously compounding rate, effective rate, continuously compounding rate conversion, no explanation
A bank quotes an interest rate of 6% pa with quarterly compounding. Note that another way of stating this rate is that it is an annual percentage rate (APR) compounding discretely every 3 months.
Which of the following statements about this rate is NOT correct? All percentages are given to 6 decimal places. The equivalent:
Question 693 boot strapping zero coupon yield, forward interest rate, term structure of interest rates
Information about three risk free Government bonds is given in the table below.
Federal Treasury Bond Data | ||||
Maturity | Yield to maturity | Coupon rate | Face value | Price |
(years) | (pa, compounding semi-annually) | (pa, paid semi-annually) | ($) | ($) |
0.5 | 3% | 4% | 100 | 100.4926 |
1 | 4% | 4% | 100 | 100.0000 |
1.5 | 5% | 4% | 100 | 98.5720 |
Based on the above government bonds' yields to maturity, which of the below statements about the spot zero rates and forward zero rates is NOT correct?