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An insurance company is analysing Bond A as given below, which is an asset of 1 million 5-year bonds selling at par, paying 8 %
An insurance company is analysing Bond A as given below, which is an asset of 1 million 5-year bonds selling at par, paying 8 % annually. The bond is financed by 10 % equity and the rest by a 4-year 10% note. The duration of this note is 3 years. What is the impact of the value of the equity if the relative change in all market interest rates is a decrease of (-0.0030). (Hint R=10%, use 4 decimal points) BOND A Payments t PV of CF (000) PV of CF xt (000) CF (000) $800 1 $727.27 $727.27 2 $800 $661.16 $1 322.31 3 $800 $601.06 $1 803.16 4 $800 $546.41 $2 185.64 5 $10 800 $6705.95 $33 259.75 $39 568.14 . Increase of 4312.91 OB No enough information to decide OC Decrease of $6914.78 OD Increase of $6892.78 O E. No impact since the bond was financed by an equity
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