Reference no: EM13923741
A major requirement in managing a fixed-income portfolio using a contingent immuniza- tion policy is monitoring the relationship between the current market value of the portfolio and the required value of the floor portfolio. This difference is defined as the margin of error. In this regard, assume a $300 million portfolio with a time horizon of five years. The available market rate at the initiation of the portfolio is 12 percent, but the client is will- ing to accept 10 percent as a floor rate to allow use of active management strategies. The current market values and current market rates at the end of Years 1, 2, and 3 are as follows:
End of Year
Market
Value ($ Mil)
Market Yield
Required Floor Portfolio ($ Mil)
Margin of Error ($ Mil)
| 1 |
$340.9 |
10% |
|
2
|
405.5
|
8
|
|
3
|
395.2
|
12
|
Assuming semiannual compounding:
a. Calculate the required ending-wealth value for this portfolio.
b. Calculate the value of the required floor portfolios at the end of Years 1, 2, and 3.
c. Compute the margin of error at the end of Years 1, 2, and 3.
d. Indicate the action that a portfolio manager utilizing a contingent immunization policy would take if the margin of error at the end of any year had been zero or negative.
|
When discounting cash flows
: When discounting cash flows:
|
|
Net present value and payback
: You are contemplating the purchase of a new $1,840,000 computer-based dairy cow feeding system. The system will be depreciated straight line over its ten year life and have no value at the end of its life. You will earn $530,000 per year from additio..
|
|
Apply standard deviation on sampling
: A sample of 40 children with chronic bronchitis is studied and their mean PEF is 279 with a standard deviation of 71.
|
|
Discuss the limitations of ratio analysis
: Discuss the limitations of ratio analysis. In a summary explain the limitations of ratio analysis to help me with a project. I need good details, with well explained limitations please.
|
|
Calculate the required ending-wealth value for the portfolio
: Calculate the required ending-wealth value for this portfolio. Calculate the value of the required floor portfolios at the end of Years 1, 2, and 3.
|
|
Farm will require an initial investment
: Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $11.80 million. This investment will consist of $2.70 million for land and $9.10 million for trucks ..
|
|
Current place of employment or an organization
: Explain this use in your current place of employment or an organization you are familiar with. Describe concerns with properly controlling this flow, including keeping it safe from unauthorized use.
|
|
Microcomputers are upgraded
: The Tingey Company has 500 obsolete microcomputers that are carried in inventory at a total cost of $720,000. If these microcomputers are upgraded at a total cost of $140,000, they can be sold for a total of $200,000
|
|
Plot the current yield curve from the interest rates
: Plot the current yield curve from the interest rates of U.S. Treasury securities as found in WSJ or IBD, or examine the chart WSJ or IBD provides. Do not show the curve, but do describe and define it (Normal or Inverted). Determine the approximate pe..
|