You attempt to finance a 10-year guaranteed investment contract (GIC). The payment made by policyholder is $100 million. Suppose the promised annual interest rate of the GIC is 5%. The bond you want to use is a 15-year, 5% annual coupon rate bond (semiannually paid). Its face value is $100 million and you bought at par. Suppose the new interest rate in the life of GIC stay constantly at 6%. Answer the following questions:
You attempt to finance a 10-year guaranteed investment contract (GIC). The payment made by policyholder is $100 million. Suppose the promised annual interest rate of the GIC is 5%. The bond you want to use is a 15-year, 5% annual coupon rate bond (semiannually paid). Its face value is $100 million and you bought at par. Suppose the new interest rate in the life of GIC stay constantly at 6%. Answer the following questions:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
You attempt to finance a 10-year guaranteed investment contract (GIC). The payment
made by policyholder is $100 million. Suppose the promised annual interest rate of the
GIC is 5%. The bond you want to use is a 15-year, 5% annual coupon rate bond (semiannually paid). Its face value is $100 million and you bought at par. Suppose the new
interest rate in the life of GIC stay constantly at 6%. Answer the following questions:
(1). What is the promised payment of the GIC?
(2). Calculate the total
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