Calculate the profit the bank earn each treasury bond, Mathematics

Financial institutions often create synthetic instruments out of existing instruments.  In this case an investment bank plans to buy Treasury Bonds with 20-year maturities at their current market price of $1,000 per bond.  Then the bank will create two instruments. One instrument (like a zero coupon bond) will promise only one maturity payment of $1,000 in 20 years.  The other instrument will pay only interest at the annual coupon interest rate of the bond, which is 6%.  Both of these synthetic instruments can be sold to investors at prices that imply a yield to maturity of 5% per year.  If the bank buys the Treasury bond and converts it into these two synthetic securities and then sells them, how much profit will the bank earn per each Treasury bond? 

            ANSWER:  Profit ____________________

 

Posted Date: 2/28/2013 4:36:37 AM | Location : United States







Related Discussions:- Calculate the profit the bank earn each treasury bond, Assignment Help, Ask Question on Calculate the profit the bank earn each treasury bond, Get Answer, Expert's Help, Calculate the profit the bank earn each treasury bond Discussions

Write discussion on Calculate the profit the bank earn each treasury bond
Your posts are moderated
Related Questions
How many 4 digit number lass than 6000 can be made with the digits 7,6,4 and 2 if digits are not repeated?

A train covered a certain distance at a uniform speed.  If the train would have been 6km/hr faster, it would have taken 4hours less than the scheduled time.   And if the train were

After seeing some children interacting naturally, write down those features of such interactions that make peer learning potentially a better way of learning. Another point that

We here move to one of the major applications of differential equations both into this class and in general. Modeling is the process of writing a differential equation to explain a

Properties of Vector Arithmetic If v, w and u are vectors (each with the same number of components) and a and b are two numbers then we have then following properties. v →


Imagine a time in history when the number system had not yet evolved a farmer needed to keep track of his cattle. What would he do to figure out whether his entire rattle returned

A lobster catcher spends $12 500 per month to maintain a lobster boat. He plans to catch an average of 20 days per month during lobster season. For each day, he must allow approx

Wendy has 5 pairs of pants and 8 shirts. How many different combinations could she form with these items? Multiply the number of choices for each item to find out the number of