You are considering to issue $50 million long-term bonds to meet its funding requirements among the...
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You are considering to issue $50 million long-term bonds to meet its funding requirements among the following two bonds available for possible change in future interest rate. Bond I: 3-year zero-coupon bonds yielding 6% Bond II: 5-year 6% annual coupon bonds yielding 6% 4. Calculate Macaulay duration of each bond. 5. Calculate duration gap when each bond is selected respectively. 6. If you believe interest rate to increase by 1 percent to 7%, which one among the above two possible bonds should you choose to increase the bank's net worth and what is the expected change in the bank's net worth? T-Bill T-Bond Question 4. Duration of each bond Value (in millions) 50.00 50.00 Question 5. Duration Gap if each bond is selected Question 6. Change in Net worth to a increase by 1% Duration (in years) 0.5 2.5 Bond I Bond I Bond I Long-term bonds Bank Capital Bond II Bond II Bond II Value (in millions) 50.00 50.00 Duration (in years) You are considering to issue $50 million long-term bonds to meet its funding requirements among the following two bonds available for possible change in future interest rate. Bond I: 3-year zero-coupon bonds yielding 6% Bond II: 5-year 6% annual coupon bonds yielding 6% 4. Calculate Macaulay duration of each bond. 5. Calculate duration gap when each bond is selected respectively. 6. If you believe interest rate to increase by 1 percent to 7%, which one among the above two possible bonds should you choose to increase the bank's net worth and what is the expected change in the bank's net worth? T-Bill T-Bond Question 4. Duration of each bond Value (in millions) 50.00 50.00 Question 5. Duration Gap if each bond is selected Question 6. Change in Net worth to a increase by 1% Duration (in years) 0.5 2.5 Bond I Bond I Bond I Long-term bonds Bank Capital Bond II Bond II Bond II Value (in millions) 50.00 50.00 Duration (in years)
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Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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