Questions
FINS5512-Financial Markets&Institutions - T2 2025
Numerical
An Australian company issued a 180-day bank-accepted bill domestically with a face value of $200000. The bill was discounted at a yield of 7.79% per annum, representing a price of $192600.96. After 21 days the discounter sells the bill in the short-term money market for $193778.75. The bill is not traded again in the market. The yield to the current holder at maturity is Answer Question 1[input]%
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Step-by-Step Analysis
We start by identifying the key facts: the bill has a face value of 200,000 and was issued for 192,600.96 when the 7.79% per annum yield (discount yield) was applied for 180 days. After 21 days, there are 159 days remaining until maturity (180 − 21 = 159). The holder in possessi......Login to view full explanationLog in for full answers
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Question at position 10 (6 marks, difficulty level: Medium) The Dunley Corp. plans to issue one-year zero-coupon bonds. It believes the bonds will have a BBB rating, and the average debt beta for BBB rating is 0.12. Suppose AAA bonds with the same maturity have a 2.5% yield. If the market risk premium is 5%, use the annual default rates by debt rating here and calculate the yield to maturity of Dunley's one-year bond, assuming an expected 70% loss rate in the event of default during average economic times. [table] Rating: | AAA | AA | A | BBB | BB | B | CCC | CC-C Default Rate: | | | | | | | | Average | 0.0% | 0.1% | 0.2% | 0.5% | 2.2% | 5.5% | 12.2% | 14.1% In Recessions | 0.0% | 1.0% | 3.0% | 3.0% | 8.0% | 16.0% | 48.0% | 79.0% [/table] 5.070%2.900%3.450%4.065%
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