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A one-year, $100 000 loan carries a coupon rate and a market interest rate of 12 per cent. The loan requires payment of accrued interest
- A one-year, $100 000 loan carries a coupon rate and a market interest rate of 12 per cent. The loan requires payment of accrued interest and one-half of the principal at the end of six months. The remaining principal and accrued interest are due at the end of the year. ( 6 marks)
- What will be the cash flows at the end of six months and at the end of the year?
- What is the present value of each cash flow discounted at the market rate? What is the total present value?
- What proportion of the total present value of cash flows occurs at the end of 6 months? What proportion occurs at the end of the year?
- What is the duration of this loan?
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Financial Institutions Management A Risk Management Approach
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders
8th edition
978-0078034800, 78034809, 978-0071051590
