A European bond paying annual coupons of 6% offers a yield of 10% pa.
Convert the yield into an effective monthly rate, an effective annual rate and an effective daily rate. Assume that there are 365 days in a year.
All answers are given in the same order:
### r_\text{eff, monthly} , r_\text{eff, yearly} , r_\text{eff, daily} ###
You just signed up for a 30 year interest-only mortgage with monthly payments of $3,000 per month. The interest rate is 6% pa which is not expected to change.
How much did you borrow? After 15 years, just after the 180th payment at that time, how much will be owing on the mortgage? The interest rate is still 6% and is not expected to change. Remember that the mortgage is interest-only and that mortgage payments are paid in arrears (at the end of the month).
A wholesale shop offers credit to its customers. The customers are given 21 days to pay for their goods. But if they pay straight away (now) they get a 1% discount.
What is the effective interest rate given to customers who pay in 21 days? All rates given below are effective annual rates. Assume 365 days in a year.
A project has the following cash flows:
| Project Cash Flows | |
| Time (yrs) | Cash flow ($) |
| 0 | -90 |
| 1 | 30 |
| 2 | 105 |
The required return of a project is 10%, given as an effective annual rate. Assume that the cash flows shown in the table are paid all at once at the given point in time.
What is the Profitability Index (PI) of the project?
You're trying to save enough money for a deposit to buy a house. You want to buy a house worth $400,000 and the bank requires a 20% deposit ($80,000) before it will give you a loan for the other $320,000 that you need.
You currently have no savings, but you just started working and can save $2,000 per month, with the first payment in one month from now. Bank interest rates on savings accounts are 4.8% pa with interest paid monthly and interest rates are not expected to change.
How long will it take to save the $80,000 deposit? Round your answer up to the nearest month.
Question 626 cross currency interest rate parity, foreign exchange rate, forward foreign exchange rate
The Australian cash rate is expected to be 2% pa over the next one year, while the Japanese cash rate is expected to be 0% pa, both given as nominal effective annual rates. The current exchange rate is 100 JPY per AUD.
What is the implied 1 year forward foreign exchange rate?
Which of the below formulas gives the profit ##(\pi)## from being short a put option? Let the underlying asset price at maturity be ##S_T##, the exercise price be ##X_T## and the option price be ##f_{LP,0}##. Note that ##S_T##, ##X_T## and ##f_{LP,0}## are all positive numbers.
Telsa Motors advertises that its Model S electric car saves $570 per month in fuel costs. Assume that Tesla cars last for 10 years, fuel and electricity costs remain the same, and savings are made at the end of each month with the first saving of $570 in one month from now.
The effective annual interest rate is 15.8%, and the effective monthly interest rate is 1.23%. What is the present value of the savings?
A firm wishes to raise $30 million now. The firm's current market value of equity is $60m and the market price per share is $20. They estimate that they'll be able to issue shares in a rights issue at a subscription price of $15. Ignore the time value of money and assume that all shareholders exercise their rights. Which of the following statements is NOT correct?
Question 889 cross currency interest rate parity, no explanation
Judging by the graph, in 2018 the USD short term interest rate set by the US Federal Reserve is higher than the JPY short term interest rate set by the Bank of Japan, which is higher than the EUR short term interest rate set by the European central bank.
At the latest date shown in 2018: ##r_{USD}>r_{JPY}>r_{EUR}##
Assume that each currency’s yield curve is flat at the latest date shown in 2018, so interest rates are expected to remain at their current level into the future.
Which of the following statements is NOT correct?
Over time you would expect the: