Suppose that 6-month, 12-month, 18-month, 24-month, and 30-month zero rates are 3%, 3.2%, 3.4%, 3.5%, and 3.6% per annum with co
ntinuous compounding respectively. Estimate the cash price of a bond with a face value of 100 that will mature in 30 months and pays a coupon of 4.5% per annum semiannually.
1 answer:
Answer:
cash price: 102.78
Explanation:
In bond valuation, the investor would be willing to pay, at the most, the present value of the future income stream discounted at the required rate of return (or yield). Thus, the value of the bond can be determined as in working shown in file attached.
there is an inverse relationship between the yield of a bond and its price or value. The higher rate of return (or yield) required, the lower the price of the bond, and vice versa. However, it should be noted that this relationship is not linear, but convex to the origin.
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Answer:
The question is missing the options which can be found in the attached.
The correct option is banker's acceptance
Explanation:
Banker's acceptance is a guarantee by a bank to the exporting party to pay a sum of money at specific date.
In international business, exporters would require additional security against their receivable usually request for a banker's acceptance also known as bill of exchange.
The bank pays the exporter a discounted amount as agreed then chase the importer for the full value of the transaction.The difference between the discounted amount paid by the bank and the full value recoverable from the importer is the bank's margin.
