BroadStreet Bank has just been given a $10,000,000, 5 year CD deposit by the local municipality. The bank has agreed to pay 8%, compounded annually on this deposit. The bank wishes to choose one debt investment to cover this deposit, so that they have earnings from this investment to just cover the interest and CD principal when it comes due in 5 years. They are looking at the following 3 possibilities for investment BondMaturityCouponYTM Duration 0.00% 8.00%5.00 7.90% 8.00%5.00 17.15% 8.00%5.00 б 7 Show that each of three investment will cover the future payout required by the CD, even if market rates increase or drop by 2 % by the end of 5 years 123
BroadStreet Bank has just been given a $10,000,000, 5 year CD deposit by the local municipality. The bank has agreed to pay 8%, compounded annually on this deposit. The bank wishes to choose one debt investment to cover this deposit, so that they have earnings from this investment to just cover the interest and CD principal when it comes due in 5 years. They are looking at the following 3 possibilities for investment BondMaturityCouponYTM Duration 0.00% 8.00%5.00 7.90% 8.00%5.00 17.15% 8.00%5.00 б 7 Show that each of three investment will cover the future payout required by the CD, even if market rates increase or drop by 2 % by the end of 5 years 123
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 14P
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