The Following Information Is About Current Spot Rates for Second

question 30

Multiple Choice

The following information is about current spot rates for Second Duration Savings' assets (loans) and liabilities (CDs) . All interest rates are fixed and paid annually $$\begin{array} { | c | c | } \hline \text { Assets } & \text { Liabilities } \\\hline \text { 1-year loan rate: } 7.50 \text { percent } & \text { 1-year CD rate: } 6.50 \text { percent } \\\hline \text { 2-year loan rate: } 8.15 \text { percent } & \text { 2-year CD rate: } 6.65 \text { percent } \\\hline\end{array}$$
-What is the duration of the two-year loan (per $100 face value) if it is selling at par?

• A)2.00 years
• B)1.92 years
• C)1.96 years
• D)1.00 year
• E)0.91 years

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Definitions:

Semi-Annual Interest Payments

Interest disbursements made twice a year on a loan or bond.

Coupon

The interest payment a bondholder receives from the bond's issuer at the coupon's interval.

Income Bonds

Bonds that pay interest only if the issuing company has sufficient earnings to cover the interest payments.