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
Related questions
Question
A financial institution invests in a zero-coupon bond with a maturity (principal) value of $500,000 and a maturity of 6 years. The bond is partially funded through a liability with a current market value of $325,000 and has a duration of 4 years. The current market rate is 5% and interest rates are expected to increase by 1% in the future. Which of the following statements is true (round your answer to 2 decimals)?
None of the given answers.
The current equity value of the position is $76,332.45 and if interest rates increase the equity value will decrease.
The current equity value of the position is $45,556.15 and if interest rates increase the equity value will increase.
The current equity value of the position is $ 48,107.70 and if interest rates increase the equity value will decrease.
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