Answered: Which of the following statements is…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

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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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