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FI516 Ch 23 P06 Build a Model Solution

# FI516 Ch 23 P06 Build a Model Solution - Build a Model...

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8e5d28bcafd84135e6dbe52d5cee41bd6beb0ced.xlsx Build a Model Michael C. Ehrhardt Page 1 11/15/2009 11/26/2006 Chapter 23. Ch 23-06 Build a Model Problem 23-6. Use the information and data from Problem 23-5, but slightly different: Problem Inputs: Size of planned debt offering = \$20,000,000 Anticipated rate on debt offering = 10% Maturity of planned debt offering = 10 Number of months until debt offering = 7 Settle price on futures contract (% of par) = 95.53125% Maturity of bond underlying futures contract = 20 Coupon rate on bond underlying futures contract = 6% Size of futures contract (dollars) = \$100,000 Value of each T-bond futures contract = \$95,531.25 Number of contracts needed for hedge = 209.36 rounding = 209.00 Value of contracts in hedge = \$19,966,031 Implied semi-annual yield = 3.200% Implied annual yield = 6.399% Change in interest rate on debt offering (basis points) = -200 New interest rate on debt = 8.0% Value of issuing at new rate interest = \$22,718,065 Dollar value savings or cost from issuing debt at the new rate = \$2,718,065 New yield on futures contract = 4.399% New value of each futures contract \$121,147.58

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FI516 Ch 23 P06 Build a Model Solution - Build a Model...

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