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 BondMaturityCouponYTM Duration 0.00% 8.00%5.00 7.90% 8.00%5.00 17.15% 8.00%5.00 б 7 Show that each of three investment will cover the future payout required by the CD, even if market rates increase or drop by 2 % by the end of 5 years 123

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 BondMaturityCouponYTM Duration 0.00% 8.00%5.00 7.90% 8.00%5.00 17.15% 8.00%5.00 б 7 Show that each of three investment will cover the future payout required by the CD, even if market rates increase or drop by 2 % by the end of 5 years 123

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 partially amortizing loan for $92,000 for 10 years is made at 6 percent interest. The lender and borrower agree that payments will be monthly and that a balance of $20,000 will remain and be repaid at the end of year 10. Required: a. Assuming 4 points are charged by the lender, what will be the yield if the loan is repaid at the end of year 10? b. What must the loan balance be if it is repaid after year 4? c. What will be the yield to the lender if the loan is repaid at the end of year 4? Note: For all requirements, do not round intermediate calculations, round your final answers to 2 decimal places.
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
Jolly Banker is calculating the loan price for a $500,000 operating loan to Kelly business. If approved, this loan will be funded with 35% equity capital, and the remaining funds will come from the bank's debt capital. You have the following information about your bank’s outlays: Administrative costs 0.45% Cost of debt 7.00% Cost of equity 5.00% Probability of loss 0.55% Fees paid by the borrower 1.00% Calculate the weighted average cost of debt for this funding request. (Enter your answer in percentage. Round your answer to 2 decimal places)
A borrower is purchasing a property for $180,000 and can choose between two possible loan alternatives. The first is a 90% loan for 25 years at 9% interest and the second is a 95% loan for 25 years at 9.25% interest. Assuming the loan will be held to maturity, what is the incremental cost of borrowing the extra money? 18.75% OO 14.34% 13.50% 12.01%
basic ARM is made for $220,000 at an initial interest rate of 6 percent for 30 years with an annual resetdate. The borrower believes that the interest rate at the beginning of year (BOY) 2 will increase to 7 percent. Required:a. Assuming that a fully amortizing loan is made, what will the monthly payments be during year 1? b. Based on (a) what will the loan balance be at the end of year (EOY) 1? c. Given that the interest rate is expected to be 7 percent at the beginning of year 2, what will the monthlypayments be during year 2? d. What will be the loan balance at the EOY 2 ? e. What would be the monthly payments in year 1 if they are to be interest only?
Everett's Electronics is receiving a senior bank loan with the following terms: $6MM principal, 5.6% interest rate, 7 year loan term, 0.75% commitment fee, and a 1% closing fee. What is the expected annual return to the lender? A. 5.85% B. 6.85% C. 5.91% D. 6.2%
Please do both correctly, I'll rate the answerQuestion:(i) A $10,000 bond is purchased for $9600 and has a bond rate of 6% per year payable semiannually for 2 years. What is the interest rate?(ii) You borrow 35,000 for 10 years at 10% per year compounded monthly. After making 24 payments you decide to pay the loan off. What's that payoff amount? Note:- please dont use pen paper
(Term structure of interest rates) If one would want to invest savings of $29,000 in government securities for the next 2 years. Currently, one can invest either in a security that pays interest of 7.6% per year for the next 2 years or in a security that matures in 1 year but pays only 6.2 % interest. If one makes the latter choice, they would then reinvest theirr savings at the end of the first year for another year. a. Why might one choose to make the investment in the 1 -year security that pays an interest rate of only 6.2 %, as opposed to investing in the 2 -year security paying 7.6 %? Provide numerical support for your answer. Which theory of term structure have you supported in your answer? b. Assume your required rate of return on the second-year investment is 10.0 %; otherwise, you will choose to go with the 2-year security. What rationale could you offer for your preference? A) Why might you choose to make the investment in the 1 -year security that pays an…
Use the following to answer questions 3-4: Use balance sheet available for an FI (all in market values). Consumer loans $150 m Liabilities $300 m Commercial Loans $250 m Equity $100 m Total Assets $400 m Total Liabilities & Equity $400 m The average duration of the loans is 8 years. The average duration of the liabilities is 2 years. 3. What is the duration gap of the bank's portfolio? A. 10 years B. 6.3 years C. 6.5 years D. 7.98 years E. 8.0 years 4. What is the change in the value of the FI's equity for a 1 percent increase in interest rates from the current rates of 0.07 (1.e., 7 percent)? Assume flat term structure, and parallel shifts in yield curves. Use the duration concept. A. $17.30987 m B. $19.51818 m C. -S 22.59093 m D. -$23.11114 m E. - $24.29906 m
A basic ARM is made for $216,000 at an initial interest rate of 6 percent for 30 years with an annual reset date. The borrower believes that the interest rate at the beginning of year (BOY ) 2 will increase to 7 percent. Required: a. Assuming that a fully amortizing loan is made, what will the monthly payments be during year 1? b. Based on (a) what will the loan balance be at the end of year (EOY ) 1? c. Given that the interest rate is expected to be 7 percent at the beginning of year 2, what will the monthly payments be during year 2? d. What will be the loan balance at the EOY 2? e. What would be the monthly payments in year 1 if they are to be interest only?

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