Bank 1 has assets composed solely of a 10-year, 12.50 percent coupon, $2.4 million loan with a 12.50 percent yield to maturity. It is financed with a 10-year, 10 percent coupon, $2.4 million CD with a 10 percent yield to maturity. Bank 2 has assets composed solely of a 7-year, 12.50 percent, zero-coupon bond with a current value of $2,068,193.38 and a maturity value of $4,716,923.15. It is financed by a 10-year, 7.75 percent coupon, $2,400,000 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?
Bank 1 has assets composed solely of a 10-year, 12.50 percent coupon, $2.4 million loan with a 12.50 percent yield to maturity. It is financed with a 10-year, 10 percent coupon, $2.4 million CD with a 10 percent yield to maturity. Bank 2 has assets composed solely of a 7-year, 12.50 percent, zero-coupon bond with a current value of $2,068,193.38 and a maturity value of $4,716,923.15. It is financed by a 10-year, 7.75 percent coupon, $2,400,000 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?
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
Related questions
Question
Transcribed Image Text:Bank 1 has assets composed solely of a 10-year, 12.50 percent coupon, $2.4 million loan with a 12.50 percent
yield to maturity. It is financed with a 10-year, 10 percent coupon, $2.4 million CD with a 10 percent yield to
maturity.
Bank 2 has assets composed solely of a 7-year, 12.50 percent, zero-coupon bond with a current value of
$2,068,193.38 and a maturity value of $4,716,923.15. It is financed by a 10-year, 7.75 percent coupon,
$2,400,000 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?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 7 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education