Financial Markets and Institutions 9th. Edition by Frederic S. Mishkin; Stanley Eakins | 9781292215006 | 1292215003 | Holooly

Financial Markets and Institutions [EXP-45449]

36 SOLVED PROBLEMS

Question: 5.5

A customer asks a bank if it would be willing to commit to making the customer a one-year loan at an interest rate of 8% one year from now. To compensate for the costs of making the loan, the bank needs to charge one percentage point more than the expected interest rate on a Treasury bond with the

Verified Answer:

The bank manager is unwilling to make the loan bec...

Question: 3.9

A manager of a financial institution is holding 25% of a portfolio in a bond with a five year duration and 75% in a bond with a 10-year duration. What is the duration of the portfolio?

Verified Answer:

The duration of the portfolio is 8.75 years. (0.25...

Question: 3.10

A pension fund manager is holding a 10-year 10% coupon bond in the fund’s portfolio, and the interest rate is currently 10%. What loss would the fund be exposed to if the interest rate rises to 11% tomorrow?

Verified Answer:

The approximate percentage change in the price of ...

Question: 5.4

As in Example 3, let’s suppose that the one-year interest rates over the next five years are expected to be 5%, 6%, 7%, 8%, and 9%. Investors’ preferences for holding shortterm bonds have the liquidity premiums for one-year to five-year bonds as 0%, 0.25%,0.5%, 0.75%, and 1.0%, respectively. What

Verified Answer:

The interest rate on the two-year bond would be 5....

Question: 23.4

Based on the information provided in Example 3, use Equation 4 to determine the duration gap for First National Bank.

Verified Answer:

The duration gap for First National Bank is 1.72 y...

Question: 3.8

Calculate the rate of capital gain or loss on a 10-year zero-coupon bond for which the interest rate has increased from 10% to 20%. The bond has a face value of $1,000.

Verified Answer:

The rate of capital gain or loss is -49.7%. [latex...

Question: 13.2

Find the current market price of Coca-Cola stock, assuming dividends grow at a constant rate of 10.95%,D0 = $1.00, and the required return is 13%.

Verified Answer:

P_{0} =\frac{D_{0}\times (1+g) }{k_{e} -g}[...

Question: 3.4

Find the price of a 10% coupon bond with a face value of $1,000, a 12.25% yield to maturity, and eight years to maturity.

Verified Answer:

The price of the bond is $889.20. To solve using a...

Question: 13.1

Find the value of the Intel stock given the figures reported above. You will need to know the required return on equity to find the present value of the cash flows. Since a stock is more risky than a bond, you will require a higher return than that offered in the bond market. Assume that after

Verified Answer:

Putting the numbers into Equation 1 yields the fol...

Question: 24.2

How many of the Chicago Mercantile Exchange March euro contracts must Mona sell in order to hedge the 10 million euro payment due in March?

Verified Answer:

Using Equation 1:

PV=\frac{CF}{(1+i)^{n} }[...

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