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A US bank has an obligation to pay $100 million in 10 years. The market interest...

A US bank has an obligation to pay $100 million in 10 years. The market interest rate is 8%.The bank’s CFO wishes to fund the obligation using 5-yearzero-coupon bonds and perpetuities paying annualcoupons.

How can the CFO finance the obligation using these bonds while mitigating interest rate risk?


How much should the CFO invest in the twobonds?


If interest rates increase by 20bps, how will it affect our decision?



please solve on excel. really appreciate!

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SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

ALL VALUES ROUNDED TO 4 DECIMALS. NEED ANY CHANGE, LET ME KNOW

jeff jeffy answered 2 years ago
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