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Hands Insurance Company issued a $90 million, one-year note at 8 percent annual interest (paying one coupon at the end of the year) or with
Hands Insurance Company issued a $90 million, one-year note at 8 percent annual interest (paying one coupon at the end of the year) or with an 8 percent yield. The proceeds, plus $10 million in equity, were used to fund a $100 million, two-year commercial loan with a 10 percent coupon rate and a 10 percent yield. Immediately after these transactions were simultaneously closed, all market interest rates increased 1.5 percent (150 basis points). 2.A. What is the true market value of the loan investment and the liability after the change in interest rates? (5 Points) 2.B. What impact did these changes in market value have on the market value of the FIs equity? (5 Points) 2.C. What was the duration of the loan investment and the liability at the time of issuance? (5 Points)
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