Exhibit 16-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 47

Multiple Choice

Exhibit 16-5
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 20 year, Aa 2% coupon bond priced to yield 9.5%. As a swap candidate you are considering a 20 year, Aa 14% coupon bond priced to yield 10.00. Assume a reinvestment rate of 11%, semiannual compounding, and a one-year workout period. $\begin{array}{lcc}&\text { Current Band } & \text { Candidate Band } \\\hline\text { Dollar Investment } & \$ 1222.04 & \$ 1343.18 \\\text { Coupon } & 110.00 & 140.00 \\\text { i on One Coupon } & 3.3 & ? \\\text { Principal Value at Year End } & 1218.04 & ? \\\text { Total Accrued } & 1341.34 & ? \\\text { Realized Compound Yield } & 9.5351 \% & ?\end{array}$

-Refer to Exhibit 16-5. The value of the swap is ____ basis points in one year

• A) 0.004921
• B) 0.4921
• C) 4.921
• D) 49.21
• E) 492.1

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Definitions:

Retained Earnings

The portion of net income left over for the business after it has paid out dividends to its shareholders.

Additional Paid-In Capital

The excess of the amount paid by investors over the par value of a stock during equity issuance.

Hazardous Substances

Materials that can pose a risk to human health or the environment when not properly managed, including toxic, corrosive, or flammable chemicals.

Hazardous Wastes

Hazardous wastes are substances that pose substantial or potential threats to public health or the environment due to their toxic, corrosive, reactive, or ignitable characteristics.