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
We contain a piece of cardboard i.e. 14 inches by 10 inches & we're going to cut out the corners as illustrates below and fold up the sides to form a box, also illustrated below. F

In a group of 1000 people, there are 750 people will speak English and 400 people will speak Russian. How many may speak English only? How many will speak Russian? How many can spe


alpha and beta are concentric angles of two points A and B on the ellipse.

log6 X + log6 (x-5) = 1

While we first looked at mechanical vibrations we looked at a particular mass hanging on a spring with the possibility of both a damper or/and external force acting upon the mass.

A 4-inch by 6-inch photograph is going to be enlarged through increasing each side by the similar amount. The new area is 168 square inches. How many inches is each dimension incre

How many types of ogives?

Three Dimensional Spaces In this section we will start taking a much more detailed look at 3-D space or R 3 ).  This is a major topic for mathematics as a good portion of Calc

give an example of a relation R that is transitive while inverse of R is not