PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 3, Problem 3SQ
(DURATION) What was the duration of the Treasury 8.5s? How would duration change if the yield rose to 4%? Can you explain why?
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e. Is the yield curve upward sloping, downward sloping, or flat?
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Suppose SBD Bank has RSA of $150m and RSL of $140m. If interest rates rise by 1 percent on both RSAs and RSLs, what would be the expected annual change in net interest income (ΔNII) based on $GAP? Show your work.
14)
Consider the following cash flows. The interest rate is 8%. What is the duration (hint: you need PV)?
Year
0
1
2
3
4
Cash flow
150
120
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200
Chapter 3 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 3 - (PRICE) In February 2009, Treasury 8.5s of 2020...Ch. 3 - (YLD) On the same day, Treasury 3.5s of 2018 were...Ch. 3 - (DURATION) What was the duration of the Treasury...Ch. 3 - (MDURATION) What was the modified duration of the...Ch. 3 - Bond prices and yields A 10-year bond is issued...Ch. 3 - Bond prices and yields The following statements...Ch. 3 - Bond prices and yields Construct some simple...Ch. 3 - Bond prices and yields A 10-year German government...Ch. 3 - Bond prices and yields A 10-year German government...Ch. 3 - Bond prices and yields A 10-year U.S. Treasury...
Ch. 3 - Bond returns If a bonds yield to maturity does not...Ch. 3 - Bond returns a. An 8%, five-year bond yields 6%....Ch. 3 - Prob. 10PSCh. 3 - Duration True or false? Explain. a....Ch. 3 - Duration Here are the prices of three bonds with...Ch. 3 - Duration Calculate the durations and volatilities...Ch. 3 - Prob. 14PSCh. 3 - Duration Find the spreadsheet for Table 3.4 in...Ch. 3 - Prob. 16PSCh. 3 - Spot interest rates and yields Which comes first...Ch. 3 - Prob. 18PSCh. 3 - Spot interest rates and yields Look again at Table...Ch. 3 - Prob. 20PSCh. 3 - Spot interest rates and yields Assume annual...Ch. 3 - Spot interest rates and yields A 6% six-year bond...Ch. 3 - Spot interest rates and yields Is the yield on...Ch. 3 - Prob. 24PSCh. 3 - Measuring term structure The following table shows...Ch. 3 - Term-structure theories The one-year spot interest...Ch. 3 - Term-structure theories Look again at the spot...Ch. 3 - Real interest rates The two-year interest rate is...Ch. 3 - Prob. 30PSCh. 3 - Bond ratings A bonds credit rating provides a...Ch. 3 - Prob. 32PSCh. 3 - Price and spot interest rates Find the arbitrage...Ch. 3 - Prob. 34PSCh. 3 - Prices and spot interest rates What spot interest...Ch. 3 - Prices and spot interest rates Look one more time...
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- What will price be in 1 year? c. What do you expect to happen to price in the following year? (Round your dollar value to 2 decimal places.) d. What is your estimate of DEQS’s intrinsic value per share if you expected DEQS to pay out only 10% of earnings starting in year 6? (Do not round intermediate calculations. Round your answer to 2 decimal places.)arrow_forward*7.2.13 Cash flow 1 consists of three payments: A in 5 periods, B in 10 periods and C in 15 periods. Cash flow 2 consists of 2 payments: X in 6 periods and Y in 12 periods. As of now, at yield j per period for all maturities, the two sets of cashflows have the same present value and the same Macaulay duration. Suppose that one period from now the yield is still j for all maturities. Show that (a) the two sets of cash flows will have the same present value; (b) the two sets of cash flows have the same Macaulay duration at that time; and (c) the Macaulay duration one period from now is exactly 1 less than it is now.arrow_forward10. Consider the following cash flow series at varying interest rates. Interest rates: Between 0 to 1 =5%, between 1 to 2 =8%, between 2 to 3 =10%, and between 3 to 4=6%. At end of year 1=$1000, at end of year 2=$1500, at end of year 3=$1000, and at end of year 4=$1000. What is the equivalent present worth of the cash flow series? * $3,833 $2,987 $4,021 $3,985arrow_forward
- 2. What does the following yield curve predict? Treasury yield curve for July 31, 2000. Maturity Yield (%) 1 month 3 months 6.20 6 months 6.35 1 year 2 years 6.30 З years 6.30 5 years 6.15 7 years 10 years 6.03 30 years 5.78arrow_forward6. The Fisher effect and the cost of unexpected inflation Suppose the nominal interest rate on savings accounts is 11% per year, and both actual and expected inflation are equal to 6%. Complete the first row of the table by filling in the expected real interest rate and the actual real interest rate before any change in the money supply. Time Period Nominal Interest Rate Expected Inflation Actual Inflation Expected Real Interest Rate Actual Real Interest Rate (Percent) (Percent) (Percent) (Percent) (Percent) Before increase in MS 11 6 6 Immediately after increase in MS 11 6 10 Now suppose the Fed unexpectedly increases the growth rate of the money supply, causing the inflation rate to rise unexpectedly from 6% to 10% per year. Complete the second row of the table by filling in the expected and actual real interest rates on savings accounts immediately after the increase in the money supply (MS). The unanticipated change in…arrow_forwardof interest? The exact real rate? 10. Inflation and Nominal Returns Suppose the real rate is 1.8 percent and the inflation rate is 3.7 percent. What rate would you expect to see on a Treasury bill? 11. Nominal and Real Returns An investment offers a total return of 12 percentarrow_forward
- 4. What is the future value at year 3 of the following set of cash flows if the discount rate is 14%? Cash Flow Year 120 0 130 1 170 2 180 3 694 Formatarrow_forwardIf the inflation rate is 6%, cost of money is 10%, what interest rate will take care of inflation and the cost of money? а. 16.6% с. 17.7% b. 15.5% d. 14.4%arrow_forward}If the capital reserve ratio has dropped from 6% to 4% and assuming a $1 million deposit, calculate the new deposit ratio that banks can lend out?arrow_forward
- 6. Problem 12-12 Capital Structure Analysis Hagen Horticulture and Supplies Limited has no debt outstanding, and its financial position is given by the following data: Assets (book market) EBIT Cost of equity, r Stock price, P Shares outstanding, n, Tax rate, T The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 40% debt based on market values, its cost of equity, f,, will increase to 9.57% to reflect the increased risk. Bonds can be sold at a cost, ra, of 7%. Hagen is a no-growth. firm. Hence, all its earnings are paid out as dividends, and earnings are expected to be constant over time. a. What effect would this use of leverage have on the value of the firm? The value of the firm would I $4,000,000 $500,000 8.75% $8 500,000 30% b. What would be the market value of Hagen's equity? Market value of equity=$arrow_forwardYou observe the following yield curve: YTM 1-year Zero 2-year Zero 6.10% 6.20% 3-year Zero 6.30% 4-year Zero 6.40% (Round your final answers to 2 decimal pleces. Enter percentages "as-Is", without the % sign.) a) If you believe that the yield curve next year will be the same as today's, calculate the holding period return (1-year) on the 1-year Zero and the 4-year Zero. 1-year Zero HPR % 4-year Zero HPR | % b) Recalculate the return on the 4-year zero if you believe in the expectations hypothesis. 4-year Zero HPR %arrow_forwardAssume the money demand function in the picture, where r is the interest rate in percent. The money supply M is 2,000, and the price level P is 2. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will: * (M/P)d = 2,200 - 200r drop by 1 percentage point. remain unchanged. Odrop by 2 percentage points. Odrop by 4 percentage points.arrow_forward
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The U.S. Treasury Markets Explained | Office Hours with Gary Gensler; Author: U.S. Securities and Exchange Commission;https://www.youtube.com/watch?v=uKXZSzY2ZbA;License: Standard Youtube License