Intro

As corporate treasurer, you have to pay $16 million in one year and again in two years. Bonds of all maturities currently yield 5%.

Attempt 1/10 for 10 pts.

Part 1

What is the duration of the liability?

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Attempt 1/10 for 10 pts.

Part 2

If you buy zero-coupon bonds with a maturity equal to the duration calculated in the previous part, what should be their combined face value (in $)?

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Attempt 1/10 for 10 pts.

Part 3

If interest rates suddenly go up to 6%, what is your immediate funding surplus (positive number) or shortfall (negative number) (in $)?

Submit

Attempt 1/10 for 10 pts.

Part 4

If interest rates suddenly go down to 4%, what is your immediate funding surplus (positive number) or shortfall (negative number) (in $)?

Submit