(4 points) If I buy this bond today for $1,120 and sell it in 1 year for $1,047 what is my return in dollar terms? Assume that all cash flows are reinvested at a 2% interest rate. In the final parts of this question we are considering the same bond but with a changed interest rate environment. The changed interest rates are: Maturity in years Interest Rate 0.5 2.1% 1 2.6% 1.5 3.1% 2 2.5% (2 points) Given the change in interest rates would you expect that the value of the bond to increase or decrease? Explain why? The following questions are to do with securities lending: (2 points) Describe two investment strategies that require the borrowing of securities? (2 points) Why might a company that has a portfolio of securities be interested in lending them out? At its peak, AIG Securities Lending Corporation had lent $76bn of securities and invested 60% of the resulting cash in residential mortgage backed securities.
(4 points) If I buy this bond today for $1,120 and sell it in 1 year for $1,047 what is my return in dollar terms? Assume that all cash flows are reinvested at a 2% interest rate. In the final parts of this question we are considering the same bond but with a changed interest rate environment. The changed interest rates are: Maturity in years Interest Rate 0.5 2.1% 1 2.6% 1.5 3.1% 2 2.5% (2 points) Given the change in interest rates would you expect that the value of the bond to increase or decrease? Explain why? The following questions are to do with securities lending: (2 points) Describe two investment strategies that require the borrowing of securities? (2 points) Why might a company that has a portfolio of securities be interested in lending them out? At its peak, AIG Securities Lending Corporation had lent $76bn of securities and invested 60% of the resulting cash in residential mortgage backed securities.
FNCE%204070%20%E2%80%93%20Final%20Exam%20-%20draft%202.docx