BroadStreet Bank has just been given a $10,000,000, 5 year CD deposit by the local municipality. The bank has agreed to pay 8%, compounded annually on this deposit. The bank wishes to choose one debt investment to cover this deposit, so that they have earnings from this investment to just cover the interest and CD principal when it comes due in 5 years. They are looking at the following 3 possibilities for investment: Bond Maturity Coupon YTM Duration 1 5 0.00% 8.00% 5.00 2 6 7.90% 8.00% 5.00 3 7 17.15% 8.00% 5.00 • Show that each of three investment will cover the future payout required by the CD, even if market rates increase or drop by ½ % by the end of 5 years
Monetary Policy and Interest Rate
Monetary policy refers to the policy which is enforced by the central bank of the country to control the money supply and economic development of the country. The main aim of monetary policy is to manage inflation, consumption, and growth of the economy. The central bank influences interest rates to manage the money supply. In monetary policy, the central bank may revise the interest rate to increase and decrease the flow of money.
Development of the US Monetary System
The monetary system of a country refers to the system in which a government provides money in the economy of the country. In the modern-day monetary system, usually it contains the National Treasury, the mint where the notes are being printed. The Central bank and the commercial banks regulate the money supply in the economy of a country.
BroadStreet Bank has just been given a $10,000,000, 5 year CD deposit
by the local municipality. The bank has agreed to pay 8%, compounded
annually on this deposit. The bank wishes to choose one debt investment to
cover this deposit, so that they have earnings from this investment to just
cover the interest and CD principal when it comes due in 5 years. They are
looking at the following 3 possibilities for investment:
Bond Maturity Coupon YTM Duration
1 5 0.00% 8.00% 5.00
2 6 7.90% 8.00% 5.00
3 7 17.15% 8.00% 5.00
• Show that each of three investment will cover the future payout required by
the CD, even if market rates increase or drop by ½ % by the end of 5 years
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