Consider the following two banks: Bank 1 has assets composed solely of a 10-year, 12 percent coupon, $1 million loan with a 12 percent yield to maturity. It is financed with a 10-year, 10 percent coupon, $1 million CD with a 10 percent yield to maturity. Bank 2 has assets composed solely of a 7-year, 12 percent, zero-coupon bond with a current value of $894,006.20 and a maturity value of $1,976,362.88. It is financed by a 10-year, 8.275 percent coupon, $1,000,000 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? (Do not round Intermediate calculations. Negative amounts should be indicated by a minus sign. Enter the answers in dollars, not millions of dollars. Round your answers to 2 decimal places. (e.g., 32.16)) Bank 1 Bank 2 Before Interest Rise Asset Value After Interest Rise Difference Before Interest Rise Liabilities Value After Interest Rise Difference
Consider the following two banks: Bank 1 has assets composed solely of a 10-year, 12 percent coupon, $1 million loan with a 12 percent yield to maturity. It is financed with a 10-year, 10 percent coupon, $1 million CD with a 10 percent yield to maturity. Bank 2 has assets composed solely of a 7-year, 12 percent, zero-coupon bond with a current value of $894,006.20 and a maturity value of $1,976,362.88. It is financed by a 10-year, 8.275 percent coupon, $1,000,000 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? (Do not round Intermediate calculations. Negative amounts should be indicated by a minus sign. Enter the answers in dollars, not millions of dollars. Round your answers to 2 decimal places. (e.g., 32.16)) Bank 1 Bank 2 Before Interest Rise Asset Value After Interest Rise Difference Before Interest Rise Liabilities Value After Interest Rise Difference
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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Question
Consider the following two banks:
Bank 1 has assets composed solely of a 10-year, 12 percent coupon, $1 million loan with a 12 percent yield to maturity. It Is financed with a 10-year, 10 percent coupon, $1 million CD with a 10 percent yleld to maturity.
Bank 2 has assets composed solely of a 7-year, 12 percent, zero-coupon bond with a current value of $894,006.20 and a maturity value of $1,976,362.88. It is financed by a 10-year, 8.275 percent coupon, $1,000,000 face value CD with a yleld 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?
Transcribed Image Text:Consider the following two banks:
Bank 1 has assets composed solely of a 10-year, 12 percent coupon, $1 million loan with a 12 percent yield to maturity. It is
financed with a 10-year, 10 percent coupon, $1 million CD with a 10 percent yield to maturity.
Bank 2 has assets composed solely of a 7-year, 12 percent, zero-coupon bond with a current value of $894,006.20 and a
maturity value of $1,976,362.88. It is financed by a 10-year, 8.275 percent coupon, $1,000,000 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? (Do not round Intermediate calculations. Negative amounts should be indicated by a minus sign. Enter the answers
In dollars, not millions of dollars. Round your answers to 2 decimal places. (e.g., 32.16))
Bank 11
Bank 2
Before Interesti
Rise
Asset Value
After Interest
Rise
Difference
Before Interest
Rise
Liabilities Value
After Interest
Rise
Difference
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