A portfolio consists of two types of loans. The first is a $30 million loan that requires a single payment of $37.8 million in 3 years, with no other payments until then. The second loan is for $40 million. It requires an annual interest payment of $3.6 million. The principal of $40 million is due in 3 years. Assume that the current interest rate is 9%. . Complete the following table to compute the duration of the second loan. Note: You may copy the table, paste it on your Word document and complete it. Year 1 3. Sum Cash payments 3.60 3.60 43.60 - ($million) Present value (PV) of cash payments ($million) Weighted PV (%) Weighted maturity (years) 1. Compute the duration of the portfolio. c. What will happen to the value of the portfolio if the general level of interest rate increases from 9% to 9,5%?

A portfolio consists of two types of loans. The first is a $30 million loan that requires a single payment of $37.8 million in 3 years, with no other payments until then. The second loan is for $40 million. It requires an annual interest payment of $3.6 million. The principal of $40 million is due in 3 years. Assume that the current interest rate is 9%. . Complete the following table to compute the duration of the second loan. Note: You may copy the table, paste it on your Word document and complete it. Year 1 3. Sum Cash payments 3.60 3.60 43.60 - ($million) Present value (PV) of cash payments ($million) Weighted PV (%) Weighted maturity (years) 1. Compute the duration of the portfolio. c. What will happen to the value of the portfolio if the general level of interest rate increases from 9% to 9,5%?

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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A $150,000 loan is to be amortized over 6 years, with annual end-of-year payments. Which of these statements is CORRECT? The proportion of interest versus principal repayment would be the same for each of the 7 payments. The annual payments would be larger if the interest rate were lower. If the loan were amortized over 10 years rather than 6 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 6-year amortization plan. The proportion of each payment that represents interest as opposed to repayment of principal would be higher if the interest rate were lower. The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher.
Consider a one-year loan with a face value of S100,000and a coupon rate of 20%. The loan requires payment ofaccrued interest and one-quarter (25%) of the principaat the end of six months. The remaining principal andaccrued interest are due at the end of the year. lf therequired yield is 15%, what is the duration of the loan interm of years? (Please round your answer to three decimal places.)
As a newly hired analyst, you are presented the following yields: 1-year 4.6%; 2-year 4.8%; 3-year 4.9%; 4-year 4.8% and 5-year 5.2%. What is the rate on a 1-year treasury Security, 4 years from now?
Consider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20 million and trade-related letters of credit with a face value of $70 million. All counterparties have a credit rating of BBB. Assuming a required capital ratio of 8%, what is the capital amount the FI needs to hold against these exposures? ANSWER MUST BE 7.52 million
what is the annual interest that you would warn on a $1200 Treasury Bond with a current yield of 1.5% that is quoted at 98 points ?
Please use the information in Question 5 to answer this question. You have taken out a 1/1 ARM (the teaser rate is locked for 1 year, and after this 1-year initial period, interest rate begins to adjust per year) with the following loan terms: • Loan amount: $300,000 • Annual rate cap: 2% • Lifetime cap: 6% • Margin: 300 bps (3%) • Teaser rate (annual): 5% • Market index rate at the beginning of year 1: 5.5% • Market index rate at the beginning of year 2: 6.5% • Loan term in years: 30 years Q6: Please calculate the monthly payment for year 1 $1,703.37 O $2,306.74 O $1,264.81 $1,610.46 No answer within +/-$10.0 of the correct one
A security pays $55 in one year and $133.10 in three years. Present value of this security is $150. The relevant interest rate is %.
A borrower and lender negotiate a $38,000,000 interest-only loan at a 6.0 percent interest rate for a term of 15 years. There is a lockout period of 10 years. Should the borrower choose to prepay this loan at any time after the end of the 10th year, a yield maintenance fee (YMF) will be charged. The YMF will be calculated as follows: A treasury security with a maturity equal to the number of months remaining on the loan will be selected, to which a spread of 150 basis points (1.50%) will be added to determine the lender's reinvestment rate. The penalty will be determined as the present value of the difference between the original loan rate and the lender's reinvestment rate. Required: a. How much will the YMF be if the loan is repaid at the end of year 13 if two year treasury rates are 3 percent? If two-year treasury rates are 5.0 percent, what will be the lender's reinvestment rate? Note: Do not round intermediate calculations, Round "YMF" to the nearest dollar amount. Enter…
None
Your liabilities consist of a payment of $5 million coming due in two years and a payment of $4 million coming due in three years. The market interest rate is 2%. What are the duration and convexity of your liabilities? O 2.71 and 7.64 O 2.80 and 9.17 O 2.21 and 5.39 O 2.44 and 6.20
Assume that a lender offers a 30-year, $145,000 adjustable rate mortgage (ARM) with the following terms: Initial interest rate = 7.5 percent Index = one-year Treasuries Payments reset each year Margin = 2 percent Interest rate cap = 1 percent annually; 3 percent lifetime Discount points = 2 percent Based on estimated forward rates, the index to which the ARM is tied is forecasted as follows: Beginning of year (BOY) 2 = 7 percent; (BOY) 3 = 8.5 percent; (BOY) 4 = 9.5 percent; (BOY) 5 = 11 percent. Required: a. Compute the payments and loan balances for the ARM for the five-year period. b. Compute the yield for the ARM for the five-year period.

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