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Calculate the payments of a floating-rate

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Reference no: EM132478450

The setting: The local school district was planning to build a new high school. The estimated cost of the building was around $100M. To finance the building the school district needed to issue a bond for about $58M. Calculate the payments (cashflows) of a floating-rate 10-year bond with face value $58M that will be sold at face value.

[a] After the bond is sold the short-term interest rate increases to 5.5% per year and is expected to stay at that level.

[b] After the bond is sold the short-term interest rate decreases to 2% and is expected to remain at 2% for the next 5 years. After 5 years the interest rate is expected to increase to 4% and remain stable.

Reference no: EM132478450

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