Case Solution

Problems Q. 1 Consider a five-year voucher trammel net with a face evaluate of $ grounds salaried an annual coupon of 15%. (i) If the trustworthy market engender is 8%, what is the adhesions legal injury? (ii) If the current market yield increases by 1% what is the attachs new monetary value? (iii) Using your swear outs to part (i) and (ii) , what is percentage transpose in the bonds price as a result of 1% increase in care rank. Q. 2 Consider the following FI relief yellow journalism M. brace Ltd Assets Liabilities year exchequer bond $175,000 1-year CD$135,000 15-year corpo deem bond$165,000 5-year repository$160,000 Notes All securities are selling at par (equal to book value). The two-year Treasury bonds yield 5% the 15-year corporate bonds yield 9% the one-year CD write up pays 4. 5% and the five-year deposit pays 8%. fall that all instruments have annual coupon payments. (a) What is the value of M. gybe Ltds beauteousness? (b) What is the weighted average m aturity of FIs assets? (c) What is the weighted average maturity of FIs liabilities? d) What is the FIs maturity bed cover? (e) What does your answer to part (d) imply about the interest rate risk exposure of M. Match Ltd? (f) augur the values of all quartette securities on M. Match Ltds balance sheet if all interest rates increase by 2%. (g) What is the conflict on the equity of M. Match Ltd? Calculate the percentage change in the value of equity. (h) What would be the impact on M. Match Ltds risk exposure if its liabilities salaried semi-annually as opposed to annually? Q. An indemnification fellowship issues a $100,000 one-year bond paying 7% annually in order to finance the acquisition of a $100,000 one-year corporate loan paying 9 % semi-annually. (a) What is the insurance companys maturity gap? What does the maturity imitate state about interest rate risk exposure given the insurance companys maturity gap? (b) Immediately after the insurance company makes these investm ents, all interest rates increase by 3%. What is the impact on the asset cash flows? What is the impact on the liability cash flows?