Amortize the loan at maturity

Reference no: EM13827723

Problem:

1. An FI purchases a $9,982 million pool of commercial loans at par. The loans have an interest rate of 8 percent, a maturity of five years, and annual payments of principal and interest that will exactly amortize the loan at maturity. What is the duration of this asset?

a. 4.12 years.
b. 3.07 years.
c. 2.50 years.
d. 2.85 years.
e. 5.00 years.

2. A $1,000 six-year Eurobond has an 8 percent coupon, is selling at par, and contracts to make annual payments of interest. The duration of this bond is 4.99 years. What will be the new price using the duration model if interest rates increase to 8.5 percent?

a. $23.10.
b. $976.90.
c. $977.23.
d. $1,023.10.
e. -$23.10.

3. An FI purchases at par value a $100,000 Treasury bond paying 10 percent interest with a 7.5 year duration. If interest rates rise by 4 percent, calculate the bond's new value. Recall that Treasury bonds pay interest semiannually. Use the duration valuation equation.

a. $28,571.43.
b. $20,864.46.
c. $15,000.00.
d. $20,864.46.
e. $71,428.57.

4. What is the duration of a 5-year par value zero coupon bond yielding 10 percent annually?

a. 0.50 years.
b. 2.00 years.
c. 4.40 years.
d. 5.00 years.
e. 4.05 years.

Summary

These short questions is from Finance. The 1st question is about computing the life of an asset based upon interest rates and repayment of principal as well as interest to amortize the loan completely. The 2nd and 3rd questions are about computation of new price at par with an increase in interest rate.

Reference no: EM13827723

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