9. A bank has value of $7 requires a with no oth $40 milliom $3.6 million $40 million a. What is portfolic b. What wi general 8.5%?

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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9.
A bank has two, 3-year commercial loans with a present
value of $70 million. The first is a $30 million loan that
requires a single payment of $37.8 million in 3 years,
with no other payments until then. The second is for
$40 million. It requires an annual interest payment of
$3.6 million. The principal of
$40 million is due in 3 years.
a. What is the duration of the bank's commercial loan
portfolio?
b. What will happen to the value of its portfolio if the
general level of interest rates increased from 8% to
8.5%?
Transcribed Image Text:9. A bank has two, 3-year commercial loans with a present value of $70 million. The first is a $30 million loan that requires a single payment of $37.8 million in 3 years, with no other payments until then. The second is for $40 million. It requires an annual interest payment of $3.6 million. The principal of $40 million is due in 3 years. a. What is the duration of the bank's commercial loan portfolio? b. What will happen to the value of its portfolio if the general level of interest rates increased from 8% to 8.5%?
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