What is market value of the ten-year loan

Reference no: EM13827713

Problem:

All assets and liabilities are currently priced at par and pay interest annually.

Assets	Amount ($ millions)	Annual Rate	Liabilities	Amount ($ millions)	Annual Rate
1-year bonds	$60	7 %	1-year CD	$50	5 %
10-year loan	$40	12 %	2-year CD	$40	6 %
			Equity	$10
Total	$100		Total	$100

1. What is market value of the ten-year loan if all market interest rates increase by 2 percent?

a. $40.000 million.

b. $44.916 million.

c. $37.830 million.

d. $42.356 million.

e. $35.827 million.

2. What is market value of the two-year CD if all market interest rates increase by 2 percent?

a. $40.381 million.

b. $39.626 million.

c. $40.000 million.

d. $38.750 million.

e. $40.769 million.

Summary

This question is from Finance as well as it is about computation of market value of 10 year loan if the interest rates raised by 2% and the market value of Certificate of Deposit if interest rates raised by 2%. These have been computed in the solution.

Reference no: EM13827713

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