Predict what will happen to the yield curve

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Reference no: EM133906098

Question 1

If bond investors decide that 25-year bonds are no longer as desirable an investment as they were previously. Predict what will happen to the yield curve, assuming:

a) The expectations theory of the term structure holds.

b) The segmented markets theory of the term structure holds.

Question 2

SIGMA Pty Ltd has recently issued $20 million of floating notes. The notes pay an annual coupon of BBSW plus 150 basis points. SIGMA Pty Ltd approaches Bendigo Bank to establish an intermediated vanilla swap. The swap contract sets a fixed rate of 5.4 per cent per annum and a reference rate of the 12-month BBSW.

a) At the first interest payment date, the BBSW is 5.0 per cent per annum. Draw and fully label a diagram showing all the applicable interest rates at that date.

b) Which party to the swap contract is required to make the first payment? How much is the payment?

Question 3

a) The company SANTA Ltd issued a bank-accepted bill to fund its working capital requirement. The bill is issued for 90 days, with a face value of $250,000 and a yield of 3% per annum to the original discounter. After 36 days, the bank bill is sold by the original discounter into the secondary market for $230,000. What is the yield received by the original discounter of the bill?

b) The Atony Ltd. company raised $1million through a 10-year bond issue on the 31st of May 2022. The bond pays 2.5% per annum in coupons, with coupons paid semi-annually. Calculate the price of the bond on the 12th of August 2026, given a market yield of 3.5% per annum. In your answer, identify whether the bond is trading at a discount or a premium, and explain the logic as to why this is the case. Note: You can write down the calculations by hand and attach a photo of your answer in the answer sheet.

Question 4

a) The Australian Government is intending on making a large cash investment in June and July of 2023. As a consequence, the government will have a short-term shortfall of $6.2 million between cash receipts and expenditures. The government is intending to meet this shortfall by issuing 180-day Treasury Notes today. Explain if there will be any effect of an increased government bond issuance on corporate bond issuance and corporate bond prices.

b) Discuss the process through which the Australian Federal Government issues debt securities to the market. In your answer, discuss the bidding process and what determines the yield at which treasury securities are issued.

c) The reserve bank is buying a large amount of government securities in the market. What is the impact on interest rates?

Question 5

a) An Australian textile company is exporting goods to Malaysia. In order to ascertain the firm's competitiveness in the foreign market, it needs to calculate the MYR/AUD cross-rate. A FX dealer quotes the following rates:

USD/AUD 1.4113-27

USD/MYR 5.2302-78

Calculate the MYR/AUD cross rate.

b) A Thailand importer has entered into a contract under which it will require payment in AUD in one month. The company is concerned at its exposure to foreign exchange risk and decides to enter into a forward exchange contract with its bank. Given the following data, calculate the forward rate offered by the bank. Both countries use a 360-day year; assume 60-day contract.

THB/AUD 0.1231 - 39

One-month Thailand interest rate: 4.31% p.a.

One-month Australian interest rate: 2.76% p.a.

Question 6

a) Astha Corporation has decided to capitalise accumulated reserves through a bonus issue of one new share for five existing shares. The shares of Astha Corporation are currently trading at a price of $4.35 per share. You are required to calculate the theoretical ex-bonus share price of Astha Corporation.

b) You are a shareholder in Ethal Corporation. Ethal Corporation shares are trading in the market at $6.20. Ethal Corporation today announced a renounceable rights issue offer which provides you with a right to subscribe for one new share at $6.00 for each three shares that you hold. Calculate the price of the right and the theoretical ex-rights share price.

Reference no: EM133906098

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