In Section 27.5, we stated that the duration of Pottertons lease equals the duration of its debt.
Question:
In Section 27.5, we stated that the duration of Potterton’s lease equals the duration of its debt.
a. Show that this is so.
b. Now suppose that the interest rate falls to 3 percent. Show how the value of the lease and the debt package are now affected by a .5 percent rise or fall in the interest rate. What would Potterton need to do to re-establish the interest rate hedge?
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a For the lease For the 6year debt value 803 million The duration of the oneyear debt value 19...View the full answer
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Related Book For
Principles of Corporate Finance
ISBN: 978-0072869460
7th edition
Authors: Richard A. Brealey, Stewart C. Myers
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