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liraira [26]
2 years ago
13

The yield to maturity (YTM) on 1-year zero-coupon bonds is 8% and the YTM on 2-year zeros is 9%. The yield to maturity on 2-year

-maturity coupon bonds with coupon rates of 11% (paid annually) is 8.5%.
Required:
a. What arbitrage opportunity is available for an investment banking firm?
b. What is the profit on the activity?
Business
1 answer:
yarga [219]2 years ago
3 0

Answer:

Arbitrage opportunity may exists as the ZCBs selling at different price at same time due to change in their YTM .

The PV of 100 face value zcb with different ytm are different , in this case.

for one year maturity with face value 100 current price = fv/ pv at 8% = 92.59

for Two year maturity with face value 100 current price = fv / Pv at 9% for two years = 84.167 , if the bond holder sell the bond after 1 year only, the price = 91.74 .

a) The arbitrage opportunity exist with buy two bond with face value 100 with maturity of 1 year and face value 110 with maturity of 2 years.

b) profit 0.01 , as difference between PV of both bond at their YTM rate.

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$1,215 per customer

Explanation:

Add all costs:

Marketing Costs = $1,200

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Total = $97,200

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Wilson is viewed by his boss as driven, tenacious, and conscientious in the pursuit of his goals. these characteristics fit with
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These are examples of <u>work-related</u> characteristics

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Which of the following is part of a sustainable economy? ANSWER a) Unselected It will value and preserve ecosystem services and
elena-14-01-66 [18.8K]

Answer:

Letter e is correct. All of the listed responses are parts of a sustainable economy.

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In a sustainable economy, people are much more aware of the preservation of nature's depleted resources, and the well-being of current and future generations, which induces companies to meet the demands of new conscious consumers by creating " green products "and the use of new technologies to reduce the negative impacts of production on the environment.

8 0
2 years ago
You are the manager of a firm that competes against four other firms by bidding for government contracts. While you believe your
hodyreva [135]

Answer: $1,000

Explanation:

Given Data;

Total government demand is Q = 800 -10P

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contracted price (cp) = $70 per unit

Therefore;

Marginal Revenue ( MR ) = Marginal Cost ( MC)

Q = 800 -10P

800 - Q = 10P

Divide through by 10, where Q = 1

800/10 - 1/10 = P

80 - 0.1Q = P

Total Revenue(TR) = PQ

TR = 80 - 0.1Q

MR = MC

where MC = $50

80 - 0.1Q = 50

Collecting like terms

80 - 50 = 0.1Q

30 = 0.1 Q

Divide both side by 0.1

Q = 300

Price would be

P = 80 - 0.1Q

P = 80 - 0.1(300)

P = $50

MC = 40

Producing Q units

Total Cost (TC ) = 40 * ( 300 )

= $12,000

Total profit

= TR - TC

= ( P * Q ) - $12,000

= ( $50 * 300 ) - $12,000

= $15,000 - $12,000

= $3,000

Changes caused by regulations

Contracted price = $70

Quantity = 100Units

TT’ = ( P * Q ) - TC

= ( 70 * 100 ) - ( 50 * 100 )

= $7,000 - $5,000

= $2,000

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If legislation is passed all profit would reduce by $1,000

3 0
3 years ago
Bakers corp will pay a dividend of 5.15 8.05 and 11.25 per share for each of the next three years respectively. the company will
Pani-rosa [81]

Answer: $19.40

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Based on the information given in the question, the following can be deduced:

D1 = $5.15

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The current stick price will be calculated as:

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= $4.64 + $6.53 + $8.23

= $19.40

5 0
3 years ago
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