Answered step by step
Verified Expert Solution
Question
00
1 Approved Answer
I could really use some help in understanding what formulas are being used to solve this problem and what all the inputs and variables going
I could really use some help in understanding what formulas are being used to solve this problem and what all the inputs and variables going into it are. For instance, where does the 13.5 come from and everything else that follows?
11. (10) A firm has $20,000,000 in assets and $16,000,000 in liabilities. The assets have an average "duration" of 12 years. There are two choices among the liabilities: 1) a short term zero coupon note with a maturity and duration of 15 years and which yields 8 percent to maturity, and 2) a long term debt maturing in 99 years currently valued at par with an interest/coupon rate of 8 percent which yields 8 percent. In order in immunize the firm from interest rate risk, what dollar amounts of short term and long term debt in each do you suggest? Assets 20,000 000112) EL. LI5) titre ) 240.000.000 = isa.+ 13.5 (16,000,000-Li n e 240.= 15L. - 13.5L. +216,000,000 (16,000 to 24000000 = 15L-13,5L; -> 24,000,000 = 1.5L; Tong term short term= 11. (10) A firm has $20,000,000 in assets and $16,000,000 in liabilities. The assets have an average "duration" of 12 years. There are two choices among the liabilities: 1) a short term zero coupon note with a maturity and duration of 15 years and which yields 8 percent to maturity, and 2) a long term debt maturing in 99 years currently valued at par with an interest/coupon rate of 8 percent which yields 8 percent. In order in immunize the firm from interest rate risk, what dollar amounts of short term and long term debt in each do you suggest? Assets 20,000 000112) EL. LI5) titre ) 240.000.000 = isa.+ 13.5 (16,000,000-Li n e 240.= 15L. - 13.5L. +216,000,000 (16,000 to 24000000 = 15L-13,5L; -> 24,000,000 = 1.5L; Tong term short term=Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started