The Zinn Company plans to issue $20,000,000 of 10-year semiannual bonds in June

Question

The Zinn Company plans to issue $20,000,000 of 10-year semiannual bonds in June 2012 to help finance a new research and development laboratory. It is now early September, and the current cost of debt to the high-risk biotech company is 12%. The coupon rate equals 12%. However, the firm's financial manager is concerned that interest rates will climb even higher in coming months.

a. Assume that interest rates in general increase by 200 basis points. How much did the firm gain or lose? (Hint: The future contracts are on hypothetical 10-year, 6% semiannual coupon bonds.)
Round your answer to two decimal places.
$

US 10 Yr T-Notes Comp. - cbot Contract Month Last Chg Open High Low Volume OpenInt Exchange Date Time 10 Yr Note Sep'11 131'04.5 -0'05.0 131'08.5 131'27.5 131'03.5 52142 74026 CBT 09/06/11 16:22:21 10 Yr Note Dec'11 130'06.5 -0'05.0 130'11.5 130'31.0 130'06.0 1006722 1725046 CBT 09/06/11 16:22:29 10 Yr Note Mar'12 129'11.5y 0 1 CBT 09/02/11 19:02:37 10 Yr Note Jun'12 128'11.5y 0 0 CBT 09/02/11 19:02:37 10 Yr Note Sep'12 127'11.5y 0 0 CBT 09/02/11 19:02:37

Explanation / Answer

$ 312625 answer

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