(NOTE: NO EXCEL WORKINGS!)

USE BA CALCULATOR. SHOW ALL WORKINGS AND GIVE EXPLANATIONS

Question 1:

If RSA $32 million and RSL = $49.5 million, what would be the change in income if interest rate rises from 5% to 10%?

Question 2:

b) What type of information asymmetry is sought to be reduced by a bond's restrictive covenants? How are restrictive covenants of a bond related to its coupon rate? Explain briefly.