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A bank has an obligation of 750 at the end of the first period and 550 at the end of the second period. It also
A bank has an obligation of 750 at the end of the first period and 550 at the end of the second period. It also has 1,528.93 to invest and can choose between a zero-coupon bond or a coupon bond. The coupon bond matures in two years, pays an annual coupon of 100, and has a balloon payment of 1,400. The zero-coupon bond has a balloon payment of 1,610 at the end of the second year. The default-free yield on a one-year bond is 10%, and the annualized yield on a two-year bond is also 10%.
i. What is the present value of the banks equity?
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