Consider an Asset with a Current Market Value of $250

question 26

Multiple Choice

Consider an asset with a current market value of $250 000 and a duration of 3.3 years.Assume the asset is partially funded through zero-coupon bonds which currently sells for $225 000 and has a maturity of 4 years.The current discount rate is 15% and interest rates are expected to increase by 150 basis points.Which of the following statements is true?

• A)The current net worth of the position is $25 000 and if interest rates increase the net worth will not be affected.
• B)The current net worth of the position is $25 000 and if interest rates increase the net worth will increase, too.
• C)The current net worth of the position is $25 000 and if interest rates increase the net worth will decrease.
• D)The current net worth of the position cannot be determined; however, if interest rates increase the net worth will increase, too.

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Definitions:

Raw Materials

The unprocessed natural resources or substances that are used in the manufacturing of goods, providing the basic material from which products are made.

Finished Products

Goods that have completed the manufacturing process but have not yet been sold or distributed to the end user.

JIT Action

An initiative or measure taken to implement Just-In-Time production, aiming to reduce waste by receiving goods only as they are needed in the production process.

Inventory

Inventory is the quantity of goods that a business has on hand, including materials, components, and finished products.