An insurance company issued a $106 million one-year, zero-coupon note at 9 percent add-on annual interest...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
An insurance company issued a $106 million one-year, zero-coupon note at 9 percent add-on annual interest (paying one coupon at the end of the year) and used the proceeds plus $26 million in equity to fund a $132 million face value, two-year commercial loan at 10 percent annual interest. Immediately after these transactions were (simultaneously) undertaken, all interest rates went up 1.3 percent. a. What is the market value of the insurance company's loan investment after the changes in interest rates? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161)) b. What is the duration of the loan investment when it was first issued? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) c. Using duration, what is the new expected value of the loan if interest rates are predicted to increase to 11.3 percent from the initial 10 percent? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161)) d. What is the market value of the insurance company's $106 million liability when interest rates rise by 1.3 percent? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161)) e. What is the duration of the insurance company's liability when it is first issued? (Round your answer to the nearest dollar amount.) a. Market value of the loan investment $ 129.073 million b. Duration of the loan investment years C. New expected value $ 129.089 million d. Market value of the liability $ 104.762 million e. Duration of the liability 1 year(s) An insurance company issued a $106 million one-year, zero-coupon note at 9 percent add-on annual interest (paying one coupon at the end of the year) and used the proceeds plus $26 million in equity to fund a $132 million face value, two-year commercial loan at 10 percent annual interest. Immediately after these transactions were (simultaneously) undertaken, all interest rates went up 1.3 percent. a. What is the market value of the insurance company's loan investment after the changes in interest rates? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161)) b. What is the duration of the loan investment when it was first issued? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) c. Using duration, what is the new expected value of the loan if interest rates are predicted to increase to 11.3 percent from the initial 10 percent? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161)) d. What is the market value of the insurance company's $106 million liability when interest rates rise by 1.3 percent? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161)) e. What is the duration of the insurance company's liability when it is first issued? (Round your answer to the nearest dollar amount.) a. Market value of the loan investment $ 129.073 million b. Duration of the loan investment years C. New expected value $ 129.089 million d. Market value of the liability $ 104.762 million e. Duration of the liability 1 year(s)
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
4. What are the three categories of transactions in the balance of payments? Give an example of each. 5. Economists sometimes say that the current exchange rate system is a dirty float system. What...
-
In a recent annual report, eBay Inc. reported that during the year it issued stock of $128 million for acquisitions. How would this be reported on the statement of cash flows?
-
Golden Winter is a company that operates in the fashion sector, for the needs of the nearest fashion show with the theme "Beauty, Casual, Indonesia" the company needs to prepare to make several...
-
Water at \(60^{\circ} \mathrm{C}\) and 0.95 bar is evaporating into a \(12.0 \mathrm{~cm}-1\) ong tube (also at \(60^{\circ} \mathrm{C}\) ) and diffusing through a stagnant layer of air. The device...
-
Production costs chargeable to the Finishing Department in June in Cascio Company are materials $16,000, labor $29,500, overhead $18,000. Equivalent units of production are materials 20,000 and...
-
You are given the quarterly demand (in units) of a product for Year 1 through Year 7. It has been determined that the data has linear trend, seasonal and random components. You want to generate...
-
Identify 2 risk management initiatives used to manage risk exposure in A Never Event.
-
the World Bank issued a pandemic bond in 2017. (a) What type of derivative is this? (b) Why do investors find this type of derivatives attractive? (c) How is this World Bank bond triggered? (d) What...
-
Adrian owns 15% of AAI. AAI had 125,000 shares currently outstanding and the market price for these is currently $20 per share. AAI's executive recently announced that the company will issue another...
-
Toyota Corp.'s stock price has a variance of returns of 0.0275. Honda Corp.'s stock has a variance of returns of 0.0425. The covariance between Toyota and Honda is 0.0155. What is the correlation...
-
Suppose during a TLC experiment the distance between the origin and one of the analytes was 4.5cm. What would be the retention factor if the distance between the origin and the solvent front was...
-
A particle is constrained to travel along the path as shown here. Let's say x = (5t4) m. Here t is in the units of seconds. Given y (4x) m. = Find the magnitudes of particle's velocity and...
-
MJMLtd is considering the launch of a new product after an extensive market research whose costs were K20,000. The research cost is due for payment in a months time. Based on the research findings,...
-
(a) Use integration by parts to show that (b) If f and g are inverse functions and f' is continuous, prove that (c) In the case where f and t are positive functions and b > a > 0, draw a diagram to...
-
"Financial statement users should focus attention on each item showing a large percentage change from one year to the next." Is this statement correct? Why?
-
What item is the key figure (that is, 100 percent) in a common-size income statement? A commonsize balance sheet?
-
What are common-size financial statements and how are they used?
Study smarter with the SolutionInn App