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Question 1

24/09/2020 Euro area Central U.S. Treasury Time to Maturity Government Bond Yield Bond Yield Rates Rates 1 Mo 0.08% 3 Mo -0.60% 0.10% 6 Mo -0.62% 0.11% 1 Yr -0.66% 0.12% 2 Yr -0.71% 0.14% 3 Yr -0.74% 0.16% 4 Yr -0.74% 5 Yr -0.72% 0.27% 7 Yr -0.63% 0.46% 10 Yr -0.49% 0.67% 20 Yr -0.17% 1.19% 30 Yr -0.05% 1.40%Which Bank Offers Depositors the Best Deal? DECISI SITUATION: You have just received a bonus of $10,000 and are looking to deposit MAK the money in a bank account for five years. You investigate the annual deposit rates of several banks and collect the following information: Compounding Bank Frequency Annual Rate A Annually 5.00% EXAMPLE 5. 1 Quarterly 5.00% ong Monthly 4.80% Daily 4.85% You understand that the more frequently interest is earned in each year, the more you will have at the end of your five-year investment horizon. To determine which bank you should deposit your money in, you calculate how much money you will have at the end of five years at each bank. You apply Equation 5.2 and come up with the following results. Which bank should you choose? Investment Compounding Value after Bank Amount Frequency Rate 5 Years A $10,000 Annually 5.00% $12,762.82 B $10,000 Quarterly 5.00% $12,820.37 $10,000 Monthly 4.80% $12,706.41 on $10,000 Daily 4.85% $12,744.11 DECISION: Even though you might expect Bank D's daily compounding to result in the highest value, the calculations reveal that Bank B provides the highest value at the end of five years. Thus, you should deposit your money in Bank B because its higher rate offsets the more frequent compounding at Banks C and D.2.00% 1.50% 1.00% ECB Yield 0.50%% US Yield 0.00%% 1 Mo\\3Mo 6Mo 1Yr 2Yr 3Yr 4 4Yr 5Yr 7Yr 10Yr 20Yr 50Yr -0.50% -1.00%% 18:50 V Calculate the market price of each bond on 24" September 2020 that issued by North Polar Lid., a European company specialises in manufacturing semiconductors, using the yield curve data provided in the table above. What is the current total value of minimum application? Corporate Bonds Fact Sheet Issuer North Polar Lid Issuing date 24* September 2020 Bond expiration date 24* September 2025 Face value 1000 per bond. Minimum application 50 Bonds (E 50,000) Interest rate Floating Interest Rate. The Interest Rate is the sum of the Market Rate plus the Margin. Coupon rate (annual) Central Government Bond Yield + 1.86%% p.a. Coupon payment Annually (coupon payment is paid on 10" July every year) Market Yield 4.5% 18:50 VRequired information [The following information applies to the questions displayed below.] Phoenix Management helps rental property owners find renters and charges the owners one-half of the first month's rent for this service. For August 2019, Phoenix expects to find renters for 100 apartments with an average first month's rent of $880. Budgeted cost data per tenant application for 2019 follow. . Professional labor: 1.8 hours at $15 00 per hour . Credit checks: $60,00 Phoenix expects other costs, including the lease payment for the building, secretarial help, and utilities, to be $4,000 per month. On average. Phoenix is successful in placing one tenant for every three applicants Actual rental applications in August 2019 were 270. Phoenix paid $8,800 for 450 hours of professional labor, Credit checks went up to $65 per application. Other costs in August 2019 (lease, secretarial help, and utilities) were $4,600 The average first monthly rentals for August 2019 were $1,000 per apartment unit for 90 units