Barclay's existing debt of $ 250 million is composed of a 6- year zero coupon bond with a market

value of $ 150 million and a 10-year coupon bond with a duration of 8 years and a market value of $ 100 million. After the new bond issue of $ 250 million, Barclay's would like to be at its optimal duration of 10 years.

a. Estimate the duration of the new bond issue (to get the weighted average duration of all debt up to 10 years). (6 points)

b. Barclay's is in a competitive business where firms have little pricing power and gets 50% of its revenues from the EU region. If all of Barclay's existing debt is US dollar debt, which of the following would you recommend for the new debt issue?

i. 100% Fixed rate, US dollar debt ii. 100% Floating rate, US dollar debt iii. 100% Fixed rate, Euro debt

iv. 100% Floating rate, Euro debt

v. 50% Fixed rate, US dollar debt and 50% Fixed rate, Euro debt

vi. 50% Floating rate, US dollar debt and 50% Floating rate, Euro debt ( 4 points)