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Shaun Insurance Company issued a $80 million, one-year, zero-coupon note at 9 percent add-on annual...

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Finance

  1. Shaun Insurance Company issued a $80 million, one-year, zero-coupon note at 9 percent add-on annual interest (paying one coupon at the end of the year and hence the value of the zero-coupon note at the end of the maturity will be $87.2 million) or with a 9 percent yield. The proceeds were used to fund a $90 million, two-year commercial loan with an 11 percent coupon rate and an 11 percent yield. Immediately after these transactions were simultaneously closed, all market interest rates increased 1.5 percent (150 basis points). Hence, assume R = 0.015.

    1. What is the true market value of the loan investment and the liability after the change in interest rates?

With working please

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