Bond issue are the value of the bonds at the market yield

Assignment Help Financial Management

Reference no: EM131543772

Today a firm has finalized plans to issue $135,000,000 total face value of bonds on November 18th. The bonds will carry a coupon rate of 7.35%, mature in 25 years and it is expected they can be issued at face value. The duration of the bonds is 9.63. They have decide to hedge the interest rate risk of the issue with the December Treasury Bond futures contract (size of contract is $100,000). The December futures price today is 110-15 (the price is quoted as a percent of face value in 32nds). The futures are tracking a bond with a yield of 6.04% and a duration of 10.27. State the size and type of futures transaction necessary to hedge the interest rate risk associated with this issue. If on November 18th the firm issues the bonds at a market yield of 7.85% and the Dec. futures contract is closed at a price of 103-21, what is the net hedged proceeds from the issue?

(Hint: the unhedged proceeds from the bond issue are the value of the bonds at the market yield)

Reference no: EM131543772

Questions Cloud

What is the npv of the new production line : The new line would cost $1 million, have a five-year life, and be depreciated using MACRS over three years. What is the NPV of the new production line?

Which is a purchase with a long-term investment : For most of us, a capital budgeting decision would be buying a house, which is a purchase with a long-term investment.

What is the estimated stock value using the ddm model : Avista Utility paid out $1.37 dividend per share last year. What’s the estimated stock value using the DDM model?

Effective rate the firm will pay on commercial paper issue : what is the effective rate the firm will pay on the commercial paper issue?

Bond issue are the value of the bonds at the market yield : The unhedged proceeds from the bond issue are the value of the bonds at the market yield

Ratio best reflects firm immediate liquidity position : Which ratio best reflects a firm immediate liquidity position?

Two ways around the lake to get between each : Calculate the actual amounts involved for the two ways around the lake to get between each of the following.

What is the present value of annuity today : What is the present value (PV) of this annuity today, given that the interest rate is 7%?

Role of audit function in assuring compliance : What factors go into determining what discount rate the manager should use? What is the role of audit function in assuring compliance with rules like Dodd-Frank

User Account

All Pages