DURATION (in DURATION (in ASSETS AMOUNT years) LIABILITIES & EQUITY AMOUNT years) 1- year time deposits 3- year certificate of deposits Cash 100 620 1 3- year commercial Ioan 700 300 2.81 6- year Treasury bond 200 4.99 Equity 80 Total Assets 1000 Total Liabilities & equity 1000 a. Using the Macaulay approach, calculate the duration of the 3– year commercial loan with a cashflow (coupon) rate of 10%. The entire loan is repaid at maturity. The value of the loan is $700 and interest rates are 12%. Use the duration of the 3- year commercial loan calculated in (a) and the other assets and liabilities durations to calculate: b. Duration of Assets c. Duration of Liabilities
DURATION (in DURATION (in ASSETS AMOUNT years) LIABILITIES & EQUITY AMOUNT years) 1- year time deposits 3- year certificate of deposits Cash 100 620 1 3- year commercial Ioan 700 300 2.81 6- year Treasury bond 200 4.99 Equity 80 Total Assets 1000 Total Liabilities & equity 1000 a. Using the Macaulay approach, calculate the duration of the 3– year commercial loan with a cashflow (coupon) rate of 10%. The entire loan is repaid at maturity. The value of the loan is $700 and interest rates are 12%. Use the duration of the 3- year commercial loan calculated in (a) and the other assets and liabilities durations to calculate: b. Duration of Assets c. Duration of Liabilities
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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Transcribed Image Text:QUESTION 3
DURATION (in
DURATION (in
ASSETS
AMOUNT
years) LIABILITIES & EQUITY
AMOUNT
years)
Cash
100
1- year time deposits
620
1
3- year commercial loan
700
3- year certificate of deposits
300
2.81
.............
6- year Treasury bond
200
4.99
Equity
Total Liabilities & equity
80
Total Assets
1000
1000
a. Using the Macaulay approach, calculate the duration of the 3 - year commercial loan
with a cashflow (coupon) rate of 10%. The entire loan is repaid at maturity. The value of
the loan is $700 and interest rates are 12%.
Use the duration of the 3 - year commercial loan calculated in (a) and the other assets and
liabilities durations to calculate:
b. Duration of Assets
c. Duration of Liabilities
d. Duration GAP
e. The change in equity if current interest rate is 10% and it is expected to decrease by 3%.
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