Galaxy Co. purchases rights to collect monthly rents from real-estate owners and securitizes it into a bond. The firm wants to combine following 3 cash flows and to securitize it into 1000 bonds with identical cash flows. - Annual rent of $20,000 from year 1-10 and lump-sum payment of $500,000 at year 10. - Annual rent of $15,000 from year 1-10 and lump-sum payment of $350,000 at year 10. - Annual rent of $5,000 from year 1-10 and lump-sum payment of $150,000 at year 10 . That says, the combined cash flow of 1000 bonds will be: $40,000 as annual coupon payments from year 1-10 and $1,000,000 as a face value at year 10. 5. Calculate the cash flow of a single bond for each year, i.e. year 0-10. 6. What is the price of this bond if the discount rate is 2%? Discuss why the price of the bond is at premium/par/discount.
Galaxy Co. purchases rights to collect monthly rents from real-estate owners and securitizes it into a bond. The firm wants to combine following 3 cash flows and to securitize it into 1000 bonds with identical cash flows.
- Annual rent of $20,000 from year 1-10 and lump-sum payment of $500,000 at year 10.
- Annual rent of $15,000 from year 1-10 and lump-sum payment of $350,000 at year 10.
- Annual rent of $5,000 from year 1-10 and lump-sum payment of $150,000 at year 10
.
That says, the combined cash flow of 1000 bonds will be: $40,000 as annual coupon payments
from year 1-10 and $1,000,000 as a face value at year 10.
5. Calculate the cash flow of a single bond for each year, i.e. year 0-10.
6. What is the price of this bond if the discount rate is 2%? Discuss why the price of the bond is at
premium/par/discount.
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