Give typing answer with explanation and conclusion Consider the following two banks: • Bank A has assets composed solely of a 10-year, 9%, zero-coupon bond a maturity value of $1,800,000 (calculate its current value). It is financed by a 12-year, 8% coupon, $1,000,000 face value bond to yield 9.5% return. • Bank B has assets composed solely of a 9-year, 10% coupon, $1.7 million bond with a 11% yield to maturity. It is financed with a 8%, 16-year, zero-coupon bond with a maturity value of $3,100,000. All securities, accept the zero-coupon bond, pay interest semi-annually and the zero-coupon bond has semi-annual compounding period. Suppose that interest rates are expected to rise by 100bps Show me the change in the values of the asset and the liabilities for each bank.
Give typing answer with explanation and conclusion Consider the following two banks: • Bank A has assets composed solely of a 10-year, 9%, zero-coupon bond a maturity value of $1,800,000 (calculate its current value). It is financed by a 12-year, 8% coupon, $1,000,000 face value bond to yield 9.5% return. • Bank B has assets composed solely of a 9-year, 10% coupon, $1.7 million bond with a 11% yield to maturity. It is financed with a 8%, 16-year, zero-coupon bond with a maturity value of $3,100,000. All securities, accept the zero-coupon bond, pay interest semi-annually and the zero-coupon bond has semi-annual compounding period. Suppose that interest rates are expected to rise by 100bps Show me the change in the values of the asset and the liabilities for each bank.
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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Give typing answer with explanation and conclusion
Consider the following two banks: • Bank A has assets composed solely of a 10-year, 9%, zero-coupon bond a maturity value of $1,800,000 (calculate its current value). It is financed by a 12-year, 8% coupon, $1,000,000 face value bond to yield 9.5% return. • Bank B has assets composed solely of a 9-year, 10% coupon, $1.7 million bond with a 11% yield to maturity. It is financed with a 8%, 16-year, zero-coupon bond with a maturity value of $3,100,000. All securities, accept the zero-coupon bond, pay interest semi-annually and the zero-coupon bond has semi-annual compounding period. Suppose that interest rates are expected to rise by 100bps Show me the change in the values of the asset and the liabilities for each bank.
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