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If the treasury management section of the bank is attempting to minimise interest rate risk, how many bonds should be issued?

If the treasury management section of the bank is attempting to minimise interest rate risk, how many bonds should be issued?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 4P
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The answers I need was how many bonds to be issued. I want the calculations. Thank you!
Suppose you are required to fund a portfolio of homogeneous $330 million fixed-rate loans with 3-year maturities and 8 percent interest per annum with repayments in equal yearly instalments using two types of bonds. One bond is an 8%, $1,000 bond maturing in 3 years, and the other is an 8%, $1,000 bond maturing in 1 year. Assume annual coupon payments for both bonds. If the treasury management section of the bank is attempting to minimise interest rate risk, how many bonds should be issued?
Transcribed Image Text:Suppose you are required to fund a portfolio of homogeneous $330 million fixed-rate loans with 3-year maturities and 8 percent interest per annum with repayments in equal yearly instalments using two types of bonds. One bond is an 8%, $1,000 bond maturing in 3 years, and the other is an 8%, $1,000 bond maturing in 1 year. Assume annual coupon payments for both bonds. If the treasury management section of the bank is attempting to minimise interest rate risk, how many bonds should be issued?
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