Question 2 Distinguish between Inter-Bank Overnight Funds and Repos a) (5 marks) b) A 20-year $1,000 par value bond has a 7% annual coupon. The bond is callable after the 10th year for a call (5 marks) premium of $1,025. If the bond is trading with a yield to call of 6.25%, the bond's yield to maturity is what? Two mortgage options are available: a 30-year fixed-rate loan at 6% with no discount points, and a 30-year fixed-rate loan at 5.75% with points. If you are planning on living in the house for 12 years, what is the most you are willing to pay in points for the 5.75% mortgage? Assume a $100,000 mortgage. (5 marks) d) The Australian dollar is trading at A$1.2653 / USS. The euro is trading at Euro 0.6200 / USS. If the rate between Euro and Australian dollar is Euro 0.4900 /AS, is there a profit opportunity through arbitrage? If so, work out the profit, if your starting amount is $100. Question 2 Distinguish between Inter-Bank Overnight Funds and Repos a) (5 marks) b) A 20-year $1,000 par value bond has a 7% annual coupon. The bond is callable after the 10th year for a call (5 marks) premium of $1,025. If the bond is trading with a yield to call of 6.25%, the bond's yield to maturity is what? Two mortgage options are available: a 30-year fixed-rate loan at 6% with no discount points, and a 30-year fixed-rate loan at 5.75% with points. If you are planning on living in the house for 12 years, what is the most you are willing to pay in points for the 5.75% mortgage? Assume a $100,000 mortgage. (5 marks) d) The Australian dollar is trading at A$1.2653 / USS. The euro is trading at Euro 0.6200 / USS. If the rate between Euro and Australian dollar is Euro 0.4900 /AS, is there a profit opportunity through arbitrage? If so, work out the profit, if your starting amount is $100