🏷 LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
chilli

chilli

Lv1

0 Followers
0 Following
0 Helped

ANSWERS

Published4

Subjects

Business1Algebra1Accounting1Finance1
4. Treasury Futures (Medium-Hard, 25 points) This problem guides you through how to price a Treasury futures contract. You have already learned the two pieces: how the last settlement price is converted to the cash paid for the actual bond that is delivered, and how to calculate forward/futures prices. You now need to combine these.
 
You want to price a one-year Treasury bond futures contract. Suppose you know that the cheapest to deliver bond will (for sure) be the bond that currently has 17 years and 4 months to maturity, and a coupon rate of 3% with coupons paid out semiannually. Suppose that all zero rates up to one year of maturity are 2.0% per year with continuous compounding.
(a) (10 points) Compute the conversion factor for the bond at the delivery date. Hint: if the bond currently has 17 years and 4 months, how long will it have left when        delivered?
(b) ( 3 points) What is the net present value of the two coupon payments made by the bond over the lifetime of the futures contract?
(c) (5 points) Suppose the "dirty" price of the bond today is $98 per $100 of face value. (This is the actual amount of money you have to pay to get the bond. Bonds         are usually quoted as "clean" prices, with the "dirty" price being the "clean" price plus accrued interest.)
     What would be the price on a one year forward contract on this bond?
(d) (7 points) What is the Treasury bond futures price? You may ignore the difference between futures and forward prices.
      Hint: start with your answer to part (c). Recall that in the futures contract, the party with the short position receives
 
futures price x conversion factor + accrued interest
 
for the bond. In (c) you figured out a forward price: the amount of cash that should be promised in return for the bond. What Treasury futures price will give you this same payment?

 

Answer:(a) To compute the conversion factor for the bond at the delivery date,...
Share
Answer:To calculate the price of the bonds, we can use the present value formu...
Share
Deal Or No Deal: Understanding Car Loans
Down payment, interest rate, loan term - the lingo involved with buying a car can seem overwhelming. The following activity will give you a rough estimate about the car-buying process (it is a little more complicated than this) and terminology. Follow the steps below to figure out how much your dream car's monthly payment would be and how much you ACTUALLY pay for the car.
 
Step 1: Decide on a make and model. Visit www.truecar.com or www.Edmunds.com to find the price of the car you would like to buy; than record it here. Total purchase price: ________
 
Step 2: Determine how much money you will need to borrow. Subtract the money you have for a down payment (the amount you give to the dealer on the day of purchase) from the total purchase price. For this exercise, imagine you have saved $ 2,000 for a down payment. The resulting total is the loan principle; record that amount here and in the chart below.
Loan Principle: ________
 
Step 3: Get quotes from several lenders. The term and interest rate of the loan will vary and both of these factors will affect your monthly payment. (For this exercise, pretend that you have received the rates below.)
 
Step 4: Calculate your total interest paid. Your total interest paid is your principle multiplied by the loan term in years (convert months to years) and then multiply that by the interest rate (convert to a decimal). Record your total interest paid in the chart below.
 
Step 5: Calculate your total amount paid. Take the total interest paid from step 4 and add it to your loan principle. This will ell you how much you will actually be paying for the car. Record your total amount paid in the chart below.
 
Step 6: Calculate your monthly payments. Take your total amount paid from step 5 and divide it by the number of months in your loan term. This will tell you how much your monthly payment will be. Record your monthly payment in the chart below. 
 
Lender Loan Principle Loan Term Interest Rate Total Interest Paid Total Amount Paid Monthly Payment
Scenario 1   36 months 6.75%      
Scenario 2   36 months 9.55%      
Scenario 3   36 months 11.25%      
Scenario 4   48 months 5.7%      
Scenario 5   48 months 7.99%      
Scenario 6   48 months 10.45%      
Scenario 7   60 months 3.99%      
Scenario 8   60 months 8.25%      
 
Answer:Let's go through the steps for this car loan exercise:Step 1: Decide on...
Share
Budgeting
Directions:
Using the following budget table (make copies if needed) determine if the financial goals of the characters in each scenario can be met.
 
Income  
Salary #1  
Salary #2  
   
Total Income  
   
Expenses  
Rent  
Transportation  
Costs  
Food   
Entertainment  
Miscellaneous  
   
   
Total Expenses  
   

Total Income - Total Expenses
(Gross Profit/Loss)

  

 

George is a single father of three girls. He works as an electrician and makes $ 2100.00 a week. He rents a three bedroom apartment for $ 1250.00 a month, including utilities. He spends $250 a month on phone, cable and internet, $ 550.00 on groceries and gives his daughters $ 50 each a month for toiletries.
His oldest, Hannah, will be starting university in September and George is hoping to buy her a car so that she can get tō and from school. He is budgeting to put $ 5000.00 down on the car and make monthly payments of $ 450.00. His own car is paid off and he spends about $ 350.00 a month in gas. His youngest daughter, Elena, plays the piano and that costs him $ 200 a month and his middle daughter Elizabeth plays hockey and that costs $ 350.00 a month. It is January. Will George be able to save enough money to buy his daughter a car by August?
  Darnel and Shauvanne have been married for 4 years. Shauvanne is a dental hygienist and makes $40.00 per hour and works 30 hours per week. Darnel is a hotel manager and brings home $ 1250 per week. They own a semi-detached home in a middle class neighbourhood where their mortgage is $ 1200 per month. Utilities, phone, cable and internet cost $ 650. Car payments are $ 875.00, and gas is another $ 350.00. They have twin 3 -year old boys named Grayson and Greg. who go to daycare every morning. Their paternal grandmother takes care of them in the afternoons. Daycare costs Shauvanne and Darnel $ 1500.00 a month. Their grocery bills are particularly high because they just found out that Grayson has significant allergies, including to dairy and gluten so they have to buy specialty foods for him. Their minimum monthly grocery bill is $ 600.00. Shauvanne and Darnel have date night once a month where they go to dinner and a movie. This costs $115.00. They also pay Darnel's niece, who is saving for college, $40.00 to watch the twins for 4 hours. Darnel and Shauvanne want to take the boys to Disney World on their 4th birthday which is 8 months away. They plan on driving to save money, but they still need $4500 for the total cost of the trip. Can they afford it?
Veronica and Jasmine are twin sisters. They recently bought a townhouse together because they knew that they couldn't afford to buy one on their own. They live in a small community where cost of living is less, but so are incomes. Veronica works as a hair stylist and makes about $ 800.00 a week and Jasmine is a store manager and brings home just a bit more, $ 900.00 a week. Their mortgage payment is $ 950.00 a month and utilities, phone, cable and internet cost an additional $ 600.00. Their grocery bill is approximately $ 600.00 a month because both girl enjoy entertaining and having friends over. Veronica is paying off her student loan from hair stylist school and that costs an additional $ 156.00 per month. Their car payments are $ 800.00 per month and their gas is only $ 150.00 as everything is located so close together. They are hoping to go to Cuba with some friends for a week in November. The cost of the trip is $ 685.00 each. November is four months away. Will they be able to save enough in time?  
Answer: Let's break down each scenario:### George's Situation:- **Income**: $2...
Share

Weekly leaderboard

Start filling in the gaps now
Log in