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On 18 September 2021, JP Morgan has purchased 300 units of 5.00% p.a. 15-year Exchange Fund Note (EFN) from Standard Cha

Posted: Tue Nov 16, 2021 8:21 am
by answerhappygod
On 18 September 2021, JP Morgan has purchased 300 units of 5.00%
p.a. 15-year Exchange Fund Note (EFN) from Standard Chartered. The
purchase price of the EFNs is 112.13. The last interest payment was
on 30 June 2021, which was 80 days ago (exclude end date). The next
interest payment will be on 31 December 2021. From the last
interest payment date to the next interest payment date, there is a
total of 184 days (exclude end date).
(a) Draw a diagram for the above bond transaction from 30 June
2021 (last interest payment date) to 31 December 2021 (next
interest payment date). Indicate the dates, time and events
involved during the specified time period.
(b) With a par value of HKD50,000 per unit and 365 days in a
year calculation.
i. Assess the total amount of accrued interest Standard
Chartered should receive for selling EFNs to JP Morgan.
ii. Ignoring transaction cost, evaluate the lump sum which JP
Morgan should pay to Standard Chartered on the settlement date for
the purchase of the EFNs
(c) On 31 December 2021, the Exchange Fund paid the second
coupon interest to EFN holders.
i. Find out the amount of coupon interest JP Morgan received on
that day.
ii. Exclude the accrued interest previously paid to the seller
(Standard Chartered) on settlement date (18 September), assess the
net amount of coupon interest income entitled by JP Morgan.