6*. A financial institution has the following market value balance sheet structure Assets Cash Bond Total assets $1 000 $10 000 $11 000 Liabilities and equity Certificate of deposit Equity Total liabilities and equity $10 000 $1.000 $11 000 The bond has a 10-year maturity and a fixed-rate coupon of 10 per cent. The certificate of deposit has a one-year maturity and a 6 per cent fixed rate of interest. The FI expects no additional asset growth.

6*. A financial institution has the following market value balance sheet structure Assets Cash Bond Total assets $1 000 $10 000 $11 000 Liabilities and equity Certificate of deposit Equity Total liabilities and equity $10 000 $1.000 $11 000 The bond has a 10-year maturity and a fixed-rate coupon of 10 per cent. The certificate of deposit has a one-year maturity and a 6 per cent fixed rate of interest. The FI expects no additional asset growth.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Nn. 120.
5.1 please provide step by step explaination
Consider the following two banks: Bank 1 has assets composed solely of a 10-year, 13.25 percent coupon, $2.7 million loan with a 13.25 percent yield to maturity. It is financed with a 10-year, 10 percent coupon, $2.7 million CD with a 10 percent yield to maturity. Bank 2 has assets composed solely of a 7-year, 13.25 percent, zero-coupon bond with a current value of $2,285,241.72 and a maturity value of $5,460,087.71. It is financed by a 10-year, 7.50 percent coupon, $2,700,000 face value CD with a yield to maturity of 10 percent. All securities except the zero-coupon bond pay interest annually. a. If interest rates rise by 1 percent (100 basis points), what is the difference in the value of the assets and llabilities of each bank? (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Enter the answers in dollars, not millions of dollars. Round your answers to 2 decimal places. (e.g., 32.16)) Bank 1 Bank 2 Before Interest Rise Asset Value After…
Cost of debt. Kenny Enterprises has just issued a bond with a par value of $1,000, a maturity of twenty years, and a coupon rate of 10.7% with semiannual payments. What is the cost of debt for Kenny Enterprises if the bond sells at the following prices? What do you notice about the price and the cost of debt? a. $967.34 b. $1,000.00 c. $1,045.83 d. $1, 189.10% (Round to two decimal places.)
Cost of debt with fees. Kenny Enterprises will issue a bond with a par value of$1,000, a maturity of twenty years, and a coupon rate of8.0%with semiannual payments, and will use an investment bank that charges$25per bond for its services. What is the cost of debt for Kenny Enterprises at the following market prices? a.$920b.$1,000c.$1,080d.$1,173
pm.4 Desert Trading Company has issued $100 million worth of long-term bonds at a fixed rate of 11%. The firm then enters into an interest rate swap where it pays SOFR and receives a fixed 6.4% on notional principal of $100 million. What is the firm’s effective interest rate on its borrowing?
8. Risks of investing in bonds A security with higher risk will have a higher expected return. A bond's risk level is reflected in its yield, but understanding the different risks involved when investing in bonds is important. The curves on the following graph show the prices of two 10% annual coupon bonds at various interest rates. BOND VALUE ($) 2000 1750 1500 1250 1000 1-Year Bond 750 500 250 10-Year Bond 0 8 12 16 20 INTEREST RATE (%) Based on the graph, which of the following statements is true? O Both bonds have equal interest rate risk. O The 10-year bond has more interest rate risk. O The 1-year bond has more interest rate risk. O Neither bond has any interest rate risk.
You are analyzing the cost of debt for a firm. You know that the firm's 14-year maturity, 8.6 percent coupon bonds are selling at a price of $832.00. The bonds pay interest semiannually. If these bonds are the only debt outstanding, answer the following questions. Problem 13.17 a1-a2(a1) Your answer is incorrect. What is the current YTM of the bonds? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to O decimal places, e.g. 15%.) Current YTM for the bonds %
Consider the following two banks: Bank 1 has assets composed solely of a 10-year, 11.00 percent coupon, $1.6 million loan with a 11.00 percent yield to maturity. It is financed with a 10-year, 10 percent coupon, $1.6 million CD with a 10 percent yield to maturity. Bank 2 has assets composed solely of a 7-year, 11.00 percent, zero-coupon bond with a current value of $1,133,012.90 and a maturity value of $2,352,316.24. It is financed by a 10-year, 5.25 percent coupon, $1,600,000 face value CD with a yield to maturity of 10 percent. All securities except the zero-coupon bond pay interest annually. a. If interest rates rise by 1 percent (100 basis points), what is the difference in the value of the assets and liabilities of each bank? (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Enter the answers in dollars, not millions of dollars. Round your answers to 2 decimal places. (e.g., 32.16)) Before Interest Rise Asset Value After Interest Rise…
(Immunization of FI) Consider a financial institution whose asset and liability both consist of coupon bonds only. The asset is a 10-year bond with face value $100 million, coupon rate 9.8% and yield 4%, while the liability is a 15-year bond with face value $100 million, coupon rate 8.2% and yield 4%. Both bonds pay coupon semiannually. Assume parallel yield shift. Required precision: 4 digits after decimal point for duration calculation; 2 digits after decimal point for dollar amount in million, e.g. $12.34 million; 4 digits after decimal point for percentage (coupon) rates, e.g. 1.2345%. (a) What are the market values of asset, liability and equity of this FI? What is its leverage-adjusted modified duration gap? (b) According to the duration model, what would the market value of equity be for a 10 basis points decrease in the yield? (c) To immunize itself from interest rate risk, the FI plans to restructure its asset bond by adjusting its face value and coupon rate, while keeping the…
Ee 375.
Solve the problem. Calculate the annual interest for a $10,000 Treasury bond with a current yield of 4.4% that is quoted at 116.6 points. $396.00 $352.00 $513.04 $615.65 QUESTION 16 Solve the problem. Calculate the annual interest for a $10,000 Treasury bond with a current yield of 3.6% that is quoted at 108 points. $324.00 $466.56 $288.00 $388.80 QUESTION 17 Solve the problem. Calculate the annual interest for a $1000 Treasury bond with a current yield of 4.6% that is quoted at 108 points. $59.62 $36.80 $49.68 $41.40

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