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##### Suppose that an investment has a $1 billion on the...

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Solution

**Question**

Suppose that an investment has a $1 billion on the book as equity. The bank has $30 billion on the book as liabilities. The bank has cash in the amount of $1 billion. The bank just bought $30 billion in 20-year T-bond with semiannual coupon payments of $35 and a principle payment of $1,000. The YTM of the bond was 5% at the time of purchase. The bank marks the value of investment to the market price of the investment. Suppose that the YTM on the bond jumps up to 8%. What happened to the balance sheet of the bank? Provide a calculation to support your answer.,The question states that a calculator may be used but not Excel.,Rachel, one quick question, how did u get 500 + 0.5x on the left side of the equation?,2 more days would be the limit

Paper#8585 | Written in 18-Jul-2015

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