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A pension plan is obligated to make disbursements of $1.2 million, $2.2 million, and $1.2 million at the end of each of the next three years, respectively. The annual interest rate is 10%. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one-year zero-coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan?
Investment in one-year zero-coupon bonds =
Investment in perpetuity =
Your client is 34 years old; and she wants to begin saving for retirement, with the first payment to come one year from now. She can save $15,000 per year; and you advise her to invest it in the stock market, which you expect to provide an average re..
Bob’s personal wealth including investments in land, stocks, and bonds is about $14,000,000. He reported an interest income of $20,000 and dividend income of $6,000 last year. The $14,000,000 includes land worth $9,000,000 that Bob bought in 1966 for..
Monhegan Computers is considering whether to begin offering customers the option to have their old personal computers recycled when they purchase new systems.
Twister Corporation is expected to pay a dividend of $7 per share one year from now on its common stock, Calculate the cost of the company’s retained earnings.
First Simple Bank pays 9.3 percent simple interest on its investment accounts. First Complex Bank pays interest on its accounts compounded annually. What rate should the bank set if it wants to match First Simple Bank over an investment horizon of 13..
If during the year you receive a dividend of $2.50 and IBM stock is selling for $130 at the end of year, what was your rate of return from investing in the stock?
Suppose Levered Bank is funded with 2% equity and 98% debt. Its current market capitalization is $10 billion, and its market to book ratio is 1. Levered Bank earns a 4.22% expected return on its assets (the loans it makes), and pays 4% on its debt. C..
A 4.00 percent coupon municipal bond has 12 years left to maturity and has a price quote of 106.80. The bond can be called in eight years. The call premium is one year of coupon payments. Compute the bond’s current yield percentage. Compute the yield..
An investor was expecting a 18% return on his portfolio with beta of 1.25 before the market risk premium decreased from 8% to 6%. Based on this change, what return will now be expected on the portfolio?
A firm has a market value equal to its book value. Currently, the firm has excess cash of $800 and other assets of $5,200. Equity is worth $6,000. The firm has 600 shares of stock outstanding and net income of $700. The firm has decided to spend all ..
Mark owns a mutual fund with a NAV of $45.00 per share and expenses of $1.45 per share. What is the expense ratio for Mark's mutual fund?
What is the relationship between your companies (Walmart and Target) and their respective employees and investors? How do these relationships affect financial performance? Are there any issues outstanding for your companies? Provide a rationale for y..
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