Question

Company T with total assets of $370 million and equity of $35 million has a leverage adjusted duration gap of +0.20 years. One-year maturity notes are currently priced at par and are paying 4.5 percent annually. Two-year maturity notes are currently priced at par and are paying 6 percent annually. The terms of a swap of $100 million notional value of liabilities' payments are 4.95 percent annual fixed payments in exchange for floating rate payments tied to the annual discount yield. Discuss your results.

a. What is the forward one-year discount yield expected next year?

b. What are the expected end-of-year profits or losses if the bank hedges its interest rate risk exposure using the swap?

Answer #1

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Company T with total assets of $370 million and equity of $35
million has a leverage adjusted duration gap of +0.20 years.
One-year maturity notes are currently priced at par and are paying
4.5 percent annually. Two-year maturity notes are currently priced
at par and are paying 6 percent annually. The terms of a swap of
$100 million notional value of liabilities' payments are 4.95
percent annual fixed payments in exchange for floating rate
payments tied to the annual discount...

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Peace Waterfront Ltd currently has 1.2 million ordinary shares
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Consider the following capital structure for AAA Corporation.
The company has one debt issue, preferred stock and common stock in
its capital structure. The firm’s tax rate is 40%; the risk-free
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Details on the components of the capital structure are listed
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Bond issue:
Preferred equity:
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10% semiannual coupon
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The Imaginary Products Co. currently has debt with a market
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Suppose the First National Bank of Austin has $500.00 million in
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1. HMK Enterprises would like to
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Rating
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YTM
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