FIN306 Question 2 (50 marks) The first round of competition is finally over. You move to...

 

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FIN306 Question 2 (50 marks) The first round of competition is finally over. You move to the last round and must face the fixed income and foreign exchange challenge. Consider two T-bills with 90 days of maturity (360 days in a year). The US T-bill has a price quote of 98.75. The Singapore (SG) T-bill has an annualized rate of 3.51%. (a) Compute the actual discount rate of the US T-bill and the price of the SG T-bill and determine which of the instrument cheaper. (8 marks) Consider a bond with a par value of $5,000 and an annual coupon rate of 5.15%. Coupons are paid quarterly and the quoted price 23 days away from the next coupon date is 101.12. (b) Compute the clean price of the bond and determine whether the bond is at a discount. (8 marks) You are given data on three bonds. Astra BBB 3.5 2.50 3.3% 0.24 Group-based Assignment Bond Rating (S&P or Moody's long-term) Maturity (years) Coupon (annual) Yield to maturity (%) Bid ask spread (over 100 par value) (c) Compare the bonds to rank them from the safest to the riskiest instrument. Biba Baa2 2.6 2.50 Rate on 31 December 2022 1.0735 0.9939 3.2858 2.7% 0.21 (18 marks) The spot rate of SGD/USD is 0.7386. The respective US and Singapore rates are 4.75% and 1.43%. Assume no-arbitrage opportunity or other costs exist in this transaction. ---- (d) Compute the SGD/USD 1-year forward rate and determine which currency will depreciate over the other. (8 marks) You look now at the movements of three currency pairs in recent months. Currency pairs AUD/NZD EUR/CHF SGD/MYR END OF ASSIGNMENT Castro Bal 5.8 3.75 11.0% 0.71 (e) For each pair, determine which currency appreciated and depreciated over the period and compute the percentage (%) change in the appreciating and depreciating currency. (8 marks) Rate on 28 February 2023 1.0882 0.9967 3.3316 FIN306 Question 2 (50 marks) The first round of competition is finally over. You move to the last round and must face the fixed income and foreign exchange challenge. Consider two T-bills with 90 days of maturity (360 days in a year). The US T-bill has a price quote of 98.75. The Singapore (SG) T-bill has an annualized rate of 3.51%. (a) Compute the actual discount rate of the US T-bill and the price of the SG T-bill and determine which of the instrument cheaper. (8 marks) Consider a bond with a par value of $5,000 and an annual coupon rate of 5.15%. Coupons are paid quarterly and the quoted price 23 days away from the next coupon date is 101.12. (b) Compute the clean price of the bond and determine whether the bond is at a discount. (8 marks) You are given data on three bonds. Astra BBB 3.5 2.50 3.3% 0.24 Group-based Assignment Bond Rating (S&P or Moody's long-term) Maturity (years) Coupon (annual) Yield to maturity (%) Bid ask spread (over 100 par value) (c) Compare the bonds to rank them from the safest to the riskiest instrument. Biba Baa2 2.6 2.50 Rate on 31 December 2022 1.0735 0.9939 3.2858 2.7% 0.21 (18 marks) The spot rate of SGD/USD is 0.7386. The respective US and Singapore rates are 4.75% and 1.43%. Assume no-arbitrage opportunity or other costs exist in this transaction. ---- (d) Compute the SGD/USD 1-year forward rate and determine which currency will depreciate over the other. (8 marks) You look now at the movements of three currency pairs in recent months. Currency pairs AUD/NZD EUR/CHF SGD/MYR END OF ASSIGNMENT Castro Bal 5.8 3.75 11.0% 0.71 (e) For each pair, determine which currency appreciated and depreciated over the period and compute the percentage (%) change in the appreciating and depreciating currency. (8 marks) Rate on 28 February 2023 1.0882 0.9967 3.3316

Answer rating: 100% (QA)

a To compute the actual discount rate of the US Tbill we can use the formula Discount Rate 100 Price Price 360 Days to Maturity In this case the price of the US Tbill is 9875 and it has a maturity of ... View the full answer