Exhibit 16-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 24

Multiple Choice

Exhibit 16-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The following information is given concerning a pure yield pick-up swap: You currently hold a 10 year, 7% coupon bond priced to yield 8%. As a swap candidate you are considering a 10 year, 8% coupon bond priced to yield 9%. Assume a reinvestment at 9%, semiannual compounding, and a one-year workout period. $\begin{array}{lcc}&\text { Current Band } & \text { Candidate Band } \\\hline \text { Dollar Investment } & \$ 932.05 & \$ 934.96 \\\text { Coupon } & \$ 70.00 & \$ 80.00 \\\text { on One Coupon } & \$ 1.575 & ? \\\text { Principal Value at Year End } & \$ 936.70 & ? \\\text { Total Accrued } & \$ 1008.28 & ? \\\text { Realized Compound Yield } & 8.018 \% & ?\end{array}$
-Refer to Exhibit 16-1. The interest on one coupon for the candidate bond is

• A) $2.97
• B) $2.03
• C) $1.80
• D) $1.37
• E) $3.49

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Definitions:

Tariffs

Government levies on goods that are imported or exported.

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A situation where the value of a country's imports significantly exceeds or is less than the value of its exports, affecting the national economy.

Regulatory Environmental Forces

Government policies, laws, and regulations that affect business operations, particularly concerning environmental protection.

Environmental Scanning

The process of gathering, analyzing, and interpreting information about external influences that could impact an organization's decision-making process.