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An insurance company issued a $94 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 $14 million in equity to fund a $108 million face value, two-year commercial loan at 11 percent annual interest. Immediately after these transactions were (simultaneously) undertaken, all interest rates went up 1.9 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., 32.16)) Market value of the loan investment $ ? 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)) Duration of the loan investment years ? c. Using duration, what is the new expected value of the loan if interest rates are predicted to increase to 12.9 percent from the initial 11 percent? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.16)) New expected value $ million? d. What is the market value of the insurance company’s $94 million liability when interest rates rise by 1.9 percent? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161)) Market value of the liability $ million e. What is the duration of the insurance company’s liability when it is first issued? Duration of the liability year(s) ?
The return on the market is 9.5% and the risk free rate is 3%. The investor is aggressive and his beta (B) is 1.25. What is the required rate of return for this investment using the CAPM approach? If you are a strict risk minimize, which stock from b..
How much extra revenue would be needed each year to recover that cost?
1.what factors affect a firms degree of transaction exposure in a particular currency? for each factor explain the
Then examine how Gallo used its distinctive competences to exploit environmental opportunities by founding Bartle's & Jaymes to enter the wine cooler industry.
ABC's common stock currently sells for $22 a share and next year will pay a quarterly dividend of $0.25 per share. Find the marginal cost of preferred stock.
The company that you work for is considering bidding on a government contract to rebuild an old bridge that has reached the end of its useful life. The two-year contract will pay the firm $11.5 million at the end of the second year. How would you est..
You own 1,100 shares of stock in Avondale Corporation. You will receive a $1.50 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $45 per share. The required return on Avondale stock is 20 percent. If you would..
You need a 30-year fixed rate mortgage to buy a new home for $240,000. Your mortgage bank will lend you the money at an APR of 5.25 % for this 360 month loan, However you can afford monthly payments of only $975, so you offer to pay off any remaining..
What does she need to save at the beginning of each month to reach her goal?
Your firm specializes in providing a wide variety of internal business solutions for different clients.
Your parents contribute $180 monthly to a college savings plan for you that earn 5.4% compounded monthly. The first deposit was exactly 18 years ago. Find the account balance immediately after today’s monthly deposit and crediting of interest.
Find the internal rate of return (IRR) for the following series of future cash flows. The initial outlay is $744,700.
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