A financial institution invests in a zero-coupon bond with a maturity (principal) value of $875,000 and a maturity of 4 years. The bond is partially funded through a liability with a current market value of $550,000 and has a duration of 5 years. The current market rate is 4% and interest rates are expected to increase by 1% in the future. Which of the following statements is true (round your answer to 2 decimals)? None of the given answers The current equity value of the position is $127,343.17 and if interest rates increase the equity value will increase. The current equity value of the position is $197,953.67 and if interest rates increase the equity value will decrease. The current equity value of the position is $377,253.37 and if interest rates increase the equity value will decrease.
A financial institution invests in a zero-coupon bond with a maturity (principal) value of $875,000 and a maturity of 4 years. The bond is partially funded through a liability with a current market value of $550,000 and has a duration of 5 years. The current market rate is 4% and interest rates are expected to increase by 1% in the future. Which of the following statements is true (round your answer to 2 decimals)? None of the given answers The current equity value of the position is $127,343.17 and if interest rates increase the equity value will increase. The current equity value of the position is $197,953.67 and if interest rates increase the equity value will decrease. The current equity value of the position is $377,253.37 and if interest rates increase the equity value will decrease.
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
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Transcribed Image Text:A financial institution invests in a zero-coupon bond with a maturity (principal) value of $875,000
and a maturity of 4 years. The bond is partially funded through a liability with a current market
value of $550,000 and has a duration of 5 years. The current market rate is 4% and interest rates
are expected to increase by 1% in the future. Which of the following statements is true (round your
answer to 2 decimals)?
None of the given answers
The current equity value of the position is $127,343.17 and if interest rates increase the equity value will
increase.
The current equity value of the position is $197,953.67 and if interest rates increase the equity value will
decrease.
The current equity value of the position is $377,253.37 and if interest rates increase the equity value will
decrease.
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