In: Finance
please answer in excel format
Ans | Assets | $1200 | ||||||
K | 92% | |||||||
DA | 2.5 | |||||||
DL | 0.8 | |||||||
R | 5% | |||||||
In order to find the change in direction and magnitude of interest rate, we solve the following equation: | ||||||||
= - (1-K) * Assets = - [DA - (K*DL) * Assets * Change in interest/(1+interest rate) | ||||||||
= - (1-0.92) * 1200 = -[2.5 - (0.92*0.80)*1200*Change in interest/ (1.05) | ||||||||
Solving for change in interest we get, | ||||||||
LHS | -96 | |||||||
RHS | = -[2.5 - (0.92*0.80)*1200*Change in interest/ (1.05) | |||||||
Equating LHS = RHS | ||||||||
-96 | = - [ 2.5 - (883.20 * change in interest / 1.05)] | |||||||
96 | =2.50 - [883.20 *change in interest/1.05] | |||||||
Change in interest = 0.0476 or 476 basis points |
Assets | $1200 | |||||
K | 0.92 | |||||
DA | 2.5 | |||||
DL | 0.8 | |||||
R | 0.05 | |||||
In order to find the change in direction and magnitude of interest rate, we solve the following equation: | ||||||
= - (1-K) * Assets = - [DA - (K*DL) * Assets * Change in interest/(1+interest rate) | ||||||
= - (1-0.92) * 1200 = -[2.5 - (0.92*0.80)*1200*Change in interest/ (1.05) | ||||||
Solving for change in interest we get, | ||||||
LHS | =- (1-0.92) * 1200 | |||||
RHS | = -[2.5 - (0.92*0.80)*1200*Change in interest/ (1.05) | |||||
Equating LHS = RHS | ||||||
-96 | = - [ 2.5 - (883.20 * change in interest / 1.05)] | |||||
96 | =2.50 - [883.20 *change in interest/1.05] | |||||
Change in interest = 0.0476 or 476 basis points | ||||||