Can someone help me with this question. I was assuming a 1% ytm for C and D but not sure if I did it correctly.
Part (a)
For Security A: Price at t = 0 will be = 76 = (Cash flow at t = 1) / (1 + YTM) = 80 / (1 + YTM)
Hence, YTM = 80 / 76 - 1= 5.26%
For security C: 68 = 80 / (1 + YTM)^{3}; Hence, YTM = (80 /68)^{1/3} - 1 = 5.57%
Part (b)
Let y be the YTM of the security D then, we need to solve the equation:
216 = 80 / (1 + y) + 80 / (1 + y)^{2} + 80 / (1 + y)^{3} = 80 / y x [1 - ( 1+y)^{-3}]; Or,
Part (c)
Price of security D = Present value of all its future cash flows
Hence, 216 = 80 / (1 + s1) + 80 / (1 + S2)^{2} + 80 / (1 + s3)^{3} = 80 / (1 + 5.26%) + 80 / (1 + s2)^{2} + 80 / (1 + 5.57%)^{3} = 144.00 + 80 / (1 + s2)^{2}
Hence, 80 / (1 + s2)^{2} = 216 - 144 = 72.00
Hence, s2 = (80 / 72)^{1/2} - 1 = 5.41%
hence, no arbitrage price for security B = 120 / (1 + s2)^{2} = 120 / (1 + 5.41%)^{2} = $ 108.00
Part (d)
E is same as C in terms of the cash flows. E = 102 / 68 x C = 1.5C
Hence, the missing cash flow of E at t = 3 will be = 1.5 x corresponding cash flow of C = 1.5 x 80 = 120
Security D can be expressed as a liner combination of A, B and C.
Create a security A + 2/3B + C
It will have a cash flows of 80 at t = 1; 2/3 x 120 = 80 at t = 2 and 80 at t = 3
Hence its cash flows are identical to that of D. Hence, price of D = Price of A + 2/3B + C = 76 + 2/3 x 108 + 68 = 216
If D starts trading at a lower price of 205, then clearly there is an arbitrage opportunity and can be exploited as shown below:
And the arbitrage profit = (A + 2/3B + C) - D = 216 - 205 = $ 11
Can someone help me with this question. I was assuming a 1% ytm for C and...
can someone please explain this question 6. Consider the following risk-free securities available to buy or sell to all investors in the market: Security Price (t=0) Cash flow (t=1) Cash flow (t=2) Cash flow (t=3) 76 120 68 216 102 Investments and Securities Markets FIN 320 a) Compute the YTM offered by securities A and C. b) Write down the equation that you would need to solve to find the YTM of security D. c) Compute the no-arbitrage price of...
Consider two securities that pay risk-free cash flows over the next two years and that have the current market prices shown here: Security B1 Price Today $90 $72 Cash Flow in one Year Cash Flow in Two Years $100 $0 $0 $80 | B2 a) What is the no-arbitrage price of a security that pays cash flows of $100 in one year and $80 in two years? [2 points] b) What is the no-arbitrage price of a security that pays...
Help with finance question please. 7. Below is a list of prices for $1,000 par zero-coupon bonds of various maturities. Maturity (Years) Bond AWNA Price $930 $850 $770 $700 1.4 a. Compute the zero-coupon rates for years 1, 2, 3 and 4. b. Consider an 8% coupon $1,000 par bond (denoted by B) paying annual coupons and expiring in 4 years. Compute the no-arbitrage price of the bond and its yield-to-maturity. c. If the expectations hypothesis holds, what is your...
This is for my intro to business, I need help with the Multiple choice question. I need help with all the questions, I did answer some of the question but I'm not sure if they're correct or not Multiple Choice - circle letter corresponding to the correct answer. 1. A is a registered representative acting as an intermediary to buy and sell securities for clients. A. certified stock underwriter lockbroker C. securities banker D. trading accountant 2. When an investor...
Suppose the economy can only be in one of the following two states: (i) Boom or “good” state and (ii) Recession or “bad” state. Each of the states can occur with an equal probability. At the beginning of a month, you can purchase the following two securities in the market: • Security 1: It is currently trading at $4. At the end of the month, the stock price is expected to increase by $10 in the good state and expected...
Can someone please help me, I am trying to find Face Value of Bond (FV), Effective Annual Interest Rate (EAR), Yield to Maturity (YTM) if held to maturity and Total Return for Investment portfolio for the 6 month treasury below. Please show your work so that I can try to grasp this. Thank you 6-month Treasury Bill (GB6:GOV) Face Value of Bond (FV) $ ? Price $ 1.54 Yield 1.58% Asset Category: U.S. Treasury and U.S. Agency Securities Asset Classification" Cash...
hello! can I have help with th3se MCQ? I know it may seem a lot of buy they are easy to answer and take very little. I am just sure of the answers. thanks 2. Which of the following is true about "double coincidence of wants"? a) It relates to monetary economy b) It does not happen in an economy with financial system. c) It is a necessary condition for barter economy d) It allows production and consumption to be...
Please Help Thank You!! 1. The SEC was established in 1934 to help regulate the United States securities market. Which of the follow ing statements is true concerning the SEC? The SEC prohibits the sale of speculative securities. b. a. Registration with the SEC guarantees the accuracy of the registrant's prospectus The SEC's initial influence and authority has diminished in recent years as stock exchanges have come more organized and better able to police themselves. d. c. The SEC regulates...
Term Answer Description Risk averse A. This is a document that is prepared to help in creating a strategy for your investment to be distributed in the investment vehicles that suit your needs. Investment plan B. This phrase is used to describe n investor who buys and sells stocks and other securities, throughout the day trying to benefit from fluctuations during or within the trading day. C. Capital accumulation plan This term is used to describe the attitude of an...
Hello, can someone help me out with the question 8,9,11,12? I calculated for question 8 the answer might be 0.33, however, there is no 0.33 as the answer. The procedure is (Real GDP2017-Real GDP2016)/ Real GDP2016=(893-890)/890=0.33 Thank you so much! Questions 6-12 Zesta's Economic Data 2016 | 2017 Actual GDP ($ Billions) 900 B = ? = Actual GDP growth rate (%) 2.0% Real GDP ($ Billions) TA=T A T | | 2018 2019 965 2.50% 915 TE = ?...