Question: Swap contract - from a CFO's perspective You are a bond portfolio manager for a large sovereign wealth fund, and have USD 100MM to invest.

Swap contract - from a CFO's perspective You are a bond portfolio manager for a large sovereign wealth fund, and have USD 100MM

Swap contract - from a CFO's perspective You are a bond portfolio manager for a large sovereign wealth fund, and have USD 100MM to invest. Because of the currency composition of your benchmark you do not want to take on additional non-USD risk. You are considering purchasing a 5-year USD bond of Mondelz (the owners of, among others, Freia), which carries an annual coupon of 10 1/8 % in USD. Mondelez has issued bonds in several international markets, including the Eurozone. Five-year 6 3/8% Euro coupon bonds of Mondelez are selling at 98.75 in the Eurozone. The spot exchange rate is currently 1.20 USD/EUR In addition the following market information is available to you: USD Bond Euro Bond Swap rates against bid ask USD libor bid ask 98.75 Price Maturity Coupon 100 5 years 10 1/8 5 years USD 8.98 EUR 5.42 9.03 5.5 6 3/8 What bond will you buy, ie. will you buy the USD bond or will you buy the EUR bond and swap the cash flows to USD? In order to answer this, please compute the USD yield of the EUR bond after having swapped the cash flows to USD. Swap contract - from a CFO's perspective You are a bond portfolio manager for a large sovereign wealth fund, and have USD 100MM to invest. Because of the currency composition of your benchmark you do not want to take on additional non-USD risk. You are considering purchasing a 5-year USD bond of Mondelz (the owners of, among others, Freia), which carries an annual coupon of 10 1/8 % in USD. Mondelez has issued bonds in several international markets, including the Eurozone. Five-year 6 3/8% Euro coupon bonds of Mondelez are selling at 98.75 in the Eurozone. The spot exchange rate is currently 1.20 USD/EUR In addition the following market information is available to you: USD Bond Euro Bond Swap rates against bid ask USD libor bid ask 98.75 Price Maturity Coupon 100 5 years 10 1/8 5 years USD 8.98 EUR 5.42 9.03 5.5 6 3/8 What bond will you buy, ie. will you buy the USD bond or will you buy the EUR bond and swap the cash flows to USD? In order to answer this, please compute the USD yield of the EUR bond after having swapped the cash flows to USD

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Face/par value = 100 for both bonds. USD bond trades at par, and Euro bond trades at 98.75 More what? Swap contract from a CFO's perspective You are a bond portfolio manager for a large sovereign...

5. Swap contract from a CFO's perspective You are a bond portfolio manager for a large sovereign wealth fund, and have USD 100MM to invest. Because of the currency composition of your benchmark you...

5. Swap contract - from a CFO's perspective You are a bond portfolio manager for a large sovereign wealth fund, and have USD 100MM to invest. Because of the currency composition of your benchmark you...

1. Swap valuation You are a bond portfolio manager at the London office of a large sovereign wealth fund, and have GBP 10M to invest. Because of the currency composition of your benchmark you do not...

NOTE: PLEASE BEFOR YOU ANSWER IT READ THE ARTICLE/CASE AND PLEASE EXPLAIN MORE YOUR ANSER THANKS. Introduction "Name" has been studying the Jabatan Audit Negara (National Audit Department [NAD])...

I would like to know if someone can assist with inputting the formulas into the Excel spreadsheets..... Answers are provided, however, the formulas were omitted. Week 9 Chapter 21: Problems 3(a-e),...

Looking for assistance in Finance HW..... I ONLY Need the FORMULASin the function ribbon (for the answers that I already have, which are attached below) Please advise if you can assist and provide...

From CFO perspective; Swap valuation. You have USD 100MM to invest. Because of currency composition of your beachmark you do not want to take on additional non-USD risk. - You are considering You are...

Research Paper: Topic: Why did the traditional financial risk approaches, methods, and tools fail in the financial market meltdown of 2008 - 2009? Discuss questions DQ #1: How has fair value...

Deal of the Century In August of 2020, your portfolio management team at Prudent Investment Management (PIM) has been asked to evaluate whether "century" bonds that have maturities of 100 years...

On Halloween Day, Christine Narvaez drove her automobile onto the parking lot of a busy supermarket. Narvaez had her two- year- old grandchild with her. The youngster was riding, unconstrained, in a...

Firm A considers acquiring an asset from firm B. The value v of the asset under the management of firm B is uniformly distributed between $0 and $100. Firm B knows the value v, but A only knows that...

when accounting for revenue over time for a long term contract the precentage of completion used to recognize revnue in the first year usually is determined by meauring

Add "Viggo Mortenslet cast = new Map ( ) ;en " to the cast as the key, with value "Aragorn".