Question

1. Set up the calculation to arrive at the market value of a new bond having a face amount of $1,000, annual interest rate of 7% payable semiannually, callable at the end of five years (call price of 106) and 25 years remaining maturity at a 6% yield to call. (Do not use a calculator. Show the appropriate equation and data substitution.) At this yield will the bond trade at par, a discount or a premium?

2. Given the following data set (which constitutes a sample) 1, 3, 5, 7, 9. Set up the calculation for the data set’s mean, variance and standard deviation.  

3. The current spot rate for the $ (US Dollar) to ¥ (Yen) exchange rate is 120. General Electric plans to purchase manufacturing equipment from a Japanese supplier with payment due one year from today in Yen. GE is offered a one-year currency forward contract priced at 116 ¥ (Yen) per $ (US Dollar) to hedge a $ to Yen conversion at the end of one year. GE’ is able to borrow at 1.5% for one year in $’s and invest at 1.25% in $’s and is able to borrow at 0.5% in Yen for one year and invest for one year at 0.25% in Yen. What is the fair value of the forward contract for GE? Should the company buy the forward? Why?

Answer 1

1)