Q6. Consider an asset with a current market value of $400,000 and a duration of 5 years. Assume the asset is partially funded through a zero-coupon bond with a maturity (principal) value of $360,000 and has a maturity of 5 years. The current market rate is 6% and interest rates are expected to increase by 1%. Which of the following statements is true?
Q6. Consider an asset with a current market value of $400,000 and a duration of 5 years. Assume the asset is partially funded through a zero-coupon bond with a maturity (principal) value of $360,000 and has a maturity of 5 years. The current market rate is 6% and interest rates are expected to increase by 1%. Which of the following statements is true?
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 9P
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Q6. Consider an asset with a current market value of $400,000 and a duration of 5 years. Assume the asset is partially funded through a zero-coupon bond with a maturity (principal) value of $360,000 and has a maturity of 5 years. The current market rate is 6% and interest rates are expected to increase by 1%. Which of the following statements is true?
The current equity value of the position is $661,976 and if interest rates increase the equity value will decrease.
The current equity value of the position is $861,876 and if interest rates increase the equity value will increase.
The current equity value of the position is $450,000 and if interest rates increase the equity value will remain unchanged.
The current equity value of the position is $130,987 and if interest rates increase the equity value will decrease.
The current equity value of the position is $40,000 and if interest rates increase the equity value will decrease.
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