An investment banker agrees to underwrite a $600 million,
10-year, 10 percent semiannual bond issue for ABC Corporation on a
firm commitment basis. The investment banker pays ABC on Thursday
and plans to begin a public sale on Friday. What type of interest
rate movement does the investment bank fear while holding these
securities? If interest rates rise five basis points, overnight,
what will be the impact on the profits of the investment banker?
What if the market interest rate...