SOLUTION: Interest Rates Balance Sheets Duration & Convexity Formula Exam Practice

Attached.1. Assume the interest rate on a 90-day, $1 million face value, T-Bill is currently selling at adiscount rate of 3.80%.a. What will be the price of T-Bill today? What is the holding period return of the TBill?days to maturity ∗ Interest ratePrice today = Face value −accounting daysPrice Today = $100 −90 ∗ 3.80%= $100 − $0.95360Price today = $99.05 ∗ 100Price today = $990,500Holding period return = ($1,000,000 − $990,500 = $𝟗, 𝟓𝟎𝟎b. Assume a borrower is given the following options for payment on $1,000,000 loan.Show payment for all three options.i.10-year amortization loan paying annual interest rate of 12%.Monthly interest rate = 12%/12 = 1%Duration = 12 *10-years = 120 monthsii.Monthly payments =Pv ∗ r(1 − (1 + r)tMonthly payments =$1,000,000 ∗ 1%= $14,3471 − (1 + 1%)−12010-year non-amortization loan with principal payment with principal paymentof at maturity payment paying annual interest rate of 12%Monthly interest rate = 12%/12 = 1%Monthly payments = 1% *$1,000,000 = $10,000Month PMTBalance1$10,000$1,000,0002$10,000$1,000,0003$10,000$1,000,000120$1,010,000 $0iii.He will pay a monthly payment of $10,000 and $1,010,000 on the last month10-year loan with no interest or principal payment for 1-5 and then 5 equalpayments from years 6-10. Interest will continue to accrue during period 1-5wen no payments are being made.1-5 years:𝐹𝑉 = 𝑃(1 + 𝑟)𝑛𝐹𝑉 = $1,000,000(1 + 1%)60𝐹𝑉 = $1,816,696.70Year 6-10At the beginning of year 6 the loan will be worth $1,816,696.70𝐹𝑉 = 𝑃(1 + 𝑟)𝑛𝐹𝑉 = $1,816,696.70(1 + 1%)60𝐹𝑉 = $3,300,386.90Equal payments:𝐴𝑛𝑢𝑎𝑙 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠 = =$3,300,386.90= $𝟔𝟔𝟎, 𝟎𝟕𝟕. 𝟑𝟖5c. Distinguish between competitive and non-competitive bids when purchasing Treasurybonds in the U.S.A non-competitive bid is made by small investors to purchase Treasury bonds while acompetitive bid is made by large investors to purchase U.S. Treasury bonds.2. Assume a bank has the folliwng balance sheet (in 000s).a. Determine the 6-month and 1-year cumulative GAP. What is the impact on netincome (NII), if interest rates are expected to increase by 1% across the board (allinterest rates)?Reciprocal bucket Assets Liabilities GAP Cumulative GAP1 to 6 months$400$200$200$2006 to 12 months$400-$400-$200If the interest rates increase by 1% the net income will decrease by $2,000 (-200,000x 1%).b. What is the impact on net interest income (NII), if the interest rates are expected toincrease as specified in the potential rate change for the 6-month and 1-year CGAPs.Reciprocal bucket Assets RateLiabilities RateGAPS1 to 6 months$4001% $4$2000.25% $0.5 $3.56 to 12 months$4000.75% $3-$30.5Net interest income will increase by $500.c. Explain the difference b…

Order a unique copy of this paper
(550 words)

Approximate price: $22

Our Basic features
  • Free title page and bibliography
  • Plagiarism-free guarantee
  • Unlimited revisions
  • Money-back guarantee
  • 24/7 support
Our Options
  • Writer’s samples
  • Expert Proofreading
  • Overnight delivery
  • Part-by-part delivery
  • Copies of used sources
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

AcademicWritingCompany guarantees

Our customer is the center of what we do and thus we offer 100% original essays..
By ordering our essays, you are guaranteed the best quality through our qualified experts.All your information and everything that you do on our website is kept completely confidential.

Money-back guarantee always strives to give you the best of its services. As a custom essay writing service, we are 100% sure of our services. That is why we ensure that our guarantee of money-back stands, always

Read more

Zero-plagiarism tolerance guarantee

The paper that you order at is 100% original. We ensure that regardless of the position you are, be it with urgent deadlines or hard essays, we give you a paper that is free of plagiarism. We even check our orders with the most advanced anti-plagiarism software in the industry.

Read more

Free-revision guarantee

The thrives on excellence and thus we help ensure the Customer’s total satisfaction with the completed Order.To do so, we provide a Free Revision policy as a courtesy service. To receive free revision the Academic writing Company requires that the you provide the request within Fifteen (14) days since the completion date and within a period of thirty (30) days for dissertations and research papers.

Read more

Privacy and Security policy

With, your privacy is the most important aspect. First, the academic writing company will never resell your personal information, which include credit cards, to any third party. Not even your lecturer on institution will know that you bought an essay from our academic writing company.

Read more

Adherence to requirements guarantee

The academic writing company writers know that following essay instructions is the most important part of academic writing. The expert writers will, therefore, work extra hard to ensure that they cooperate with all the requirements without fail. We also count on you to help us provide a better academic paper.

Read more

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2020 at 10:52 AM
Total price:
The price is based on these factors:
Customer Academic level
Number of pages required
Urgency of paper