fm23 3 - SOLUTIONS TO END-OF-CHAPTER PROBLEMS 23-1 If Zhao...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Answers and Solutions: 23 - 4 SOLUTIONS TO END-OF-CHAPTER PROBLEMS 23-1 If Zhao issues fixed rate debt and then swaps, its net cash flows will be: 7% + 6.8% LIBOR = (LIBOR + 0.2%). 23-2 The price of the hypothetical bond is $1,000(89 + 8/32)/100 = $892.50. Using a financial calculator, we can solve for r d as follows: N = 40; PV = -892.50; PMT = 30; FV = 1000; solve for I/YR = 3.504. The annual value of r d is 3.504% × 2 7.01%. 23-3 Futures contract settled at 100 16/32% of $100,000 contract value, so PV = 1.005 × $1,000 = $1,005 × 100 bonds = $100,500. Using a financial calculator, we can solve for r d as follows: N = 40; PV = -1005; PMT = 30; FV = 1000; solve for I = r d = 2.9784% × 2 = 5.9569% 5.96%. If interest rates increase to 6.9569%, then we would solve for PV as follows: N = 40; I = 6.9569/2 = 3.47845; PMT = 30; FV = 1000; solve for PV = $897.4842 × 100 = $89,748.42. Thus, the contact’s value has decreased from $100,500 to $89,748.42. 23-4
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.
Ask a homework question - tutors are online