Suppose Federal National Mortgage Association sells mortgage-backed securities (MBS) backed by a fixed-rate mortgage portfolio having the following features: Current mortgage balance = $300,000,000 Weighted average coupon rate (WAC) = 6% Weighted average maturity (WAM) = 360 months Current prepayment speed = 300 PSA Pass-through rate (PT Rate) = 5.4% What is the amount of total cash flows that the investors of the agency MBS receive in Month 2?
Q: Calculate the annual force of interest which is equivalent to a nominal rate of discount of 5.5% per…
A: Nominal rate of discount = 5.5%Nominal rate compounding period = 2required annual interest rate…
Q: calculate the equivalent nominal interest rate per annum convertible quarterly, given that force of…
A: The nominal interest rate refers to the interest rate that is earned over a period of time but it…
Q: Company A has the following: Debt: 50,000 bonds with a coupon rate of 5.7 percent and a current…
A: The cost of capital is the minimum rate of return that a company must earn on its investments in…
Q: calculate Compounding interes со 8 2900 at 4-7570 машаву вы я тоже ав Я 2500 24 2290 bar 12 молеке
A: Compounding is the phenomenon of paying interest on interest already earned. Basically, the interest…
Q: Berry Dude did a study on his dorm floor and found that the average college student eats 0.75 pounds…
A: The given details are:Mean value: 0.75 poundsStandard deviation: 0.2 poundsRequired: Compute the…
Q: Barry Inc. is considering a project that has the following cash flow and WACC data. What is the…
A: MIRR of the project is computed by following formula:- MIRR = where,where,FV = future valuePV =…
Q: Assume Carlton enters into a three-year fixed-for-fixed swap agreement to receive Swiss Franc and…
A: NotionalAmount is $2,000,000Spot Exchange Rate at the time of Swap is SF0.80/$Spot Exchange Rate…
Q: There are three stocks, A, B, and C, with the following expected return, volatility, and correlation…
A: The solution requires use of excel and matrix multiplication functions embedded in excel. We also…
Q: Veghie Co is acquiring Fruit Inc for $25,250 in cash. Veggie Co has 2350 shares outstanding at a…
A: Acquistion is when two or more firm will take over the business of another firm. Under Acquisition…
Q: Differentiate these candlestick patterns with real-life examples of Indian companies from National…
A: Candlestick patterns are visual representations of price movements in financial markets, commonly…
Q: Problem 2.1 You have just received a heritage farm from your grandparents, which you sold for…
A: Mortgage amount = $300,000Interest rate = 4.50%Mortgage period = 30 years
Q: XYZ, Inc. just paid dividend of $16.34. The dividends are expected to grow at 7.36% each year…
A: Current market price of share represents that what is the value of share in the market is going on.…
Q: company needs to buy an annuity package that will provide a future income to an individual over a…
A: Annuity is the uniform payments over a period of time and annuity dues are paid at the beginning of…
Q: Gaewelyn is considering opening a new business for a long-term care facility. The initial investment…
A: Net present value represents the dollar value of profit generated by an investment and expressed in…
Q: 3) Bond matures in 15 years. Coupon rate 18%. Payment made in weekly. R After 10-years coupon rate…
A: calculating the rate of return (ROR) involves evaluating how much money an investment generates over…
Q: dividual invests a series of level payments at the end of each quarter into a sinking fund, with no…
A: Future value includes the amount being deposited and the amount of interest accumulated over the…
Q: orbet Fish Packing Company wants to accumulate enough money over the next 10 years to pay for the…
A: Sinking fund relates to creating a fund in which an equal amount is deposited at end of each period…
Q: Assume you are considering a stock which oddly pays a dividend at the end of each year. Your…
A: The price of a stock can be estimated by taking the sum of all discounted dividend payments.
Q: A bond that has a face value of $4,000 and coupon rate of 3.60% payable semi-annually was redeemable…
A: The price of a bond is the present value of all future coupon payments and par value payment at…
Q: Consider two binomial trees, one for the spot price of an asset and the other for the futures price…
A: A mathematical method used in finance to value options and other derivative securities is called the…
Q: You sign a mobile phone contract agreeing to pay £30 at the end of each month for the next two…
A: Present value (PV) is a financial concept used to determine the current worth of future cash flows…
Q: A straight bond with a coupon rate of 8 percent sells at a yield to maturity of 9.57 percent. The…
A: Bond price is the discounted value of future cash flow from the bond including coupons and face…
Q: Assume the Black-Scholes market model dSt = o St dBt. So > 0, D₁ = e-rt. Let Ot be a derivative with…
A: The Black-Scholes model is a widely used mathematical formula in finance for valuing European-style…
Q: a fixed term deposit investment account with an interest rate of 6.5% per annum compounding…
A: Effective interest rate is the interest rate after considering the impact of compounding on the…
Q: NEED ALL THREE PARTS,,,,,,DON'T ATTEMPT IF YOU WILL NOT SOLVE ALL THREE PARTS Jiminy’s Cricket…
A: Bonds are a source of investment and finance and these bonds pay interest each period and par value…
Q: n investor pays the following separate amounts into a fund: £5,000 at t=0 £8,800 at t=7 £13,000…
A: The concept of time value of money will be used here. As per the concept of time value of money the…
Q: speculate on its value. Use the following quotes and the fact that each com is for 62,500 pounds to…
A: Short selling is virtual selling where one does not hold assets but sells on the market and promises…
Q: Consider the data on European put option, as described below. stock price today: 5.03 exercise…
A: An equation used in finance to value options and other derivative securities is called the binomial…
Q: Compute the premium payback period of the following convertible bond: par=$100, coupon rate=6%,…
A: Convertible bond at par= $100Coupon rate= 6%Conversion ratio= 19Current market price= $114.87Current…
Q: Which of the following statements are correct? I.The standard deviation is a measure of risk.II.The…
A: Standard deviation is a statistical measure that quantifies the amount of variation or dispersion in…
Q: Parker, Inc purchased new equipment for $180,000. The project's estimated cash flows for the next…
A: Payback period refers to the year or period of year which is required to recover the initial cost of…
Q: Suppose that you hold a piece of land in the City of London that you may want to sell in one year.…
A: Exchange rate risk, also known as currency risk or foreign exchange risk, refers to the potential…
Q: The target capital structure of Company A, Inc. consists of 35% debt and 65% equity. Company A is…
A: The cost of debt refers to the interest that the company provides to its debt holder for their…
Q: An investor pays the following separate amounts into a fund: £11,900 at t=6, £17,600 at t=14, and…
A: As per the given information:Effective annual rate of interest = 11.9% during the first 7…
Q: Rockmont Recreation Inc. is considering a project that has the following cash flow and WACC data.…
A: Cash Flow for Year 0 = cf0 = -$1000Cash Flow for Year 1 = cf1 = $450Cash Flow for Year 2 = cf2 =…
Q: Suppose Abraxas Corp. has an equity cost of capital of 8.2%, market capitalization of $11.37…
A: The cost of raising marginal funds factoring in the weighted costs of each source is the WACC of a…
Q: Question A .Your company currently has $1,000 par, 6.25% coupon bonds with 10 years to maturity…
A: A bond is a kind of debt security issued by the government and private companies to the public for…
Q: ank at a discount basis 8% which also requires a compensating balance equivalent to 7% of the loan.…
A: Loans are given on the basis of interest and that interest depends on the discount and compensating…
Q: Calculate the price of a put option on stock using a three-time-step binomial tree model. We know…
A: The call option refers to a derivative instrument where the holder of this instrument is given the…
Q: Sunrise, Incorporated, is trying to determine its cost of debt. The firm has a debt issue…
A: Compound = Semiannually = 2Time = nper = 8 * 2 = 16Quoted Price = 103.5%Coupon Rate = 5.2 / 2 =…
Q: The Thompson Corporation projects an increase in sales from $1.5 million to $2 million, but it needs…
A: Trade credit is a method of purchasing products or services from a supplier with an agreement to pay…
Q: Bonds Builtrite is planning on offering a $1000 par value. 20 year, 5% coupon bond with an expected…
A: The costs incurred by a company to issue new securities or bonds are called the issuance costs of…
Q: ABC Trucking's balance sheet shows a total of noncallable $30 million long-term debt with a coupon…
A: WACC of a company refers to the return that the company provides to all its stakeholders. It is…
Q: You short-sell a stock and currently have 1/3 of the stock's value as collateral. Over the next 8…
A: The Effective Annual Rate (EAR), also known as the annual equivalent rate (AER), is used to compare…
Q: 3. Manuel spends 9000 to buy a 12-payment annuity, which pays K at the end of each month. The…
A: Present value of annuity is computed as follows:-PV = A * wherePV = Present value of annuityA =…
Q: The yield curve reveals that the 1-year spot rate is 4.9% and the 2-year spot rate is 7.9%. What is…
A: A bond is a kind of debt security issued by the government and private companies to the public for…
Q: Storm plc has 5,000 shares outstanding and the stock price is £140. The company is expected to pay a…
A: shareholders should evaluate their own financial goals, tax situation, and income needs to decide…
Q: You have the following information on six-month European options based on a common underlying stock:…
A: The put-call parity refers to the relationship between the prices of the put and the call options…
Q: Problem 13-20 Firm Valuation Orca Industries is considering the purchase of Shark Manufacturing.…
A: Free cash flow for Shark= $6,900,000Growth rate for five years= 9%Growth rate for perpetuity= 6%Cost…
Q: Meghan Pease purchased a small sailboat for $8,350. She made a down payment of $1,300 and financed…
A: Finance charges are the interest paid on the loan and these are additional payments over the loan as…
Step by step
Solved in 3 steps with 2 images
- Suppose Federal National Mortgage Association sells mortgage-backed securities (MBS) backed by a fixed-rate mortgage portfolio having the following features: Current mortgage balance = $300,000,000 Weighted average coupon rate (WAC) = 6% Weighted average maturity (WAM) = 360 months Current prepayment speed = 300 PSA Pass-through rate (PT Rate) = 5.4% What is the total amount of mortgage payment by mortgage loan borrowers in Month 1? O a. $1,797,749.77 O b. $1,798,651.58 OC. $298,651.58 O d. $1,500.000A financial institution uses a loan base rate of 4.35% and sets the credit risk premium at 6.68%. The institution charges a 1.5% loan origination fee and imposes 3.22% compensating balances. The required reserves for this institution are 10%. Additionally suppose your institution specifies the following linear probability model to estimate the probability of default: PD=80-8₁ Wealth - B₂Credit Score + B3 Number of Bankruptcies Bo= 10, 109.5 8₁0.10 B₂ = 0.20 B3 = 0.60 Use the information above to answer the question. What is the gross rate of return on the loan? O 9.31% O 11.03% O 12.53% 12.90%Suppose you purchase a T-bills that is 125 days from maturity for $9,765. The T-bills has a face value of $10,000.a. Calculate the T-bills’s quoted discount rate. b. Calculate the T-bills’s annualized rate.c. Who are the major issuers of and investors in money market securities?
- Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $25,950,000, with the promise to buy them back at a price of $26,000,000. a. Calculate the yield on the repo if it has a 5-day maturity. b. Calculate the yield on the repo if it has a 15-day maturitBorrower Inc. is currently estimating the value of its bonded indebtedness with the following information: Real risk-free rate is currently estimated at 4.25% • The expected inflation premium is at 1.75% Considering the current creditworthiness of Borrower Inc., it's credit spread is estimated at: o 2.0% for 3-year maturity instruments o 3.0% for 4-year maturity instruments o 4.0% for 5-year maturity instruments Borrower Inc. have the following issued bonded indebtedness: Bond A carries a 5-year tenor with a face value of Php500,000 issued 2 years ago carrying a coupon of 8.0% per annum. Bond B carries a 5-year tenor with a face value of Php600,000 issued a year ago carrying a coupon of 10.0% per annum. Bond C carries a 8-year tenor with a face value of Php400,000 issued 3 years ago carrying a coupon of 11.5% per annum. What is the value of Bond A? Clue - correct answer should have a string of number "00" appearing in sequence in any unit until two decimal points.To calculate WACC of a firm, which of the following should be used as the cost of debt? - Bank deposit rate - Annual yield to maturity of the bond issued by this firm - Risk free rate - 3 Month T bill rate
- Borrower Inc. is currently estimating the value of its bonded indebtedness with the following information: Real risk-free rate is currently estimated at 4.25% The expected inflation premium is at 1.75% Considering the current creditworthiness of Borrower Inc., it's credit spread is estimated at: 2.0% for 3-year maturity instruments 3.0% for 4-year maturity instruments 4.0% for 5-year maturity instruments Borrower Inc. have the following issued bonded indebtedness: Bond A carries a 5-year tenor with a face value of Php500,000 issued 2 years ago carrying a coupon of 8.0% per annum. Bond B carries a 5-year tenor with a face value of Php600,000 issued a year ago carrying a coupon of 10.0% per annum. Bond C carries a 8-year tenor with a face value of Php400,000 issued 3 years ago carrying a coupon of 11.5% per annum. 1. What is the value of Bond A? Clue - correct answer should have a string of number "00" appearing in sequence in any unit until two decimal points. 2. What is the…I (Interest rates) 1. Consider a bank account paying interest rate R2 = 4% with semi-annual compounding frequency. What is the equivalent rate R1 with yearly compounding frequency? What is the equivalent rate Rc with continuous compounding? 2. Explain briefly (in words) what are the potential pitfalls of using the Internal Rate of Return (IRR) for the evaluation of investment projects. 3. Consider the following two bonds: bond (A) is a zero-coupon bond with maturity TA and duration DA = TA; bond (B) is a coupon bond with maturity TB > TA and duration DB = TA. Which of the two bonds has a greater convexity? (Justify your answer.)13. Suppose that an FI holds two loans with the following characteristics. Annual Spread between Loan Rate and FI's Cost of Funds Loan X₁ 0.45 0.55 1 2 5.5% 3.5 Annual Fees 2.25% 1.75 Loss to Fl Expected Given Default Default Frequency 30% 20 3.5% 1.0 P12 = -0.15 Calculate the return and risk on the two-asset portfolio using Moody's Analytics Portfolio Manager.
- A Credit Default Swap is structured like the one below for a protection of $100 million. If payments are made annually, what are the cash flows from A to B if there is a default after 2 years and 2 months and recovery rate is 40%? And what are the cash flows from B to A? 70 bps per year Default Default Protection Protection Buyer, A Seller, B Payoff if there is a default by reference entity=100(1-R)Third Mortgage Investors makes money by purchasing mortgage backed securities (MBS), stripping them into interest only (IO) and principal only (PO) components, and selling the components for more than it paid for the original security. Suppose the company purchases a $100,000 Face value MBS carrying a coupon of 9 percent and a maturity of 30 years. Assume for the purpose of the following analysis, the MBS will make payments on an “ANNUAL BASIS.” 1) What is the annual payment on the MBSCould you also include the formula that you use when working out the calculation, for example part A asks the new bond value, could you include a formula to show how this is calculated Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset 5yr bond bought at a yield of 3.4% (lending money) $550M 4.562 12.026 12yr bond bought at a yield of 4% (lending money) $800M 9.453 53.565 Liabilities Value Duration of the Liability Convexity of the Liability 2yr bond sold at a yield of 2.4% (borrowing money) $300M 1.941 2.384 4yr bond sold at a yield of 2.8% (borrowing money) $500M 3.759 8.206 Required a) If the interest rates go up by 1%, using the duration and convexity rule to determine the net worth of the bank and the equity to asset ratio; (Hint: equity to asset ratio = total equity/total asset) b) In a)’s scenario, to maintain the equity to asset…