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How good of a deal is mikey offering you for his portfolio

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Reference no: EM132991194

Question - Your cousin Mikey is attempting to sell you his portfolio to pay off some gambling debts. Vincent has informed Mikey that he needs the money by the end of the day or he will help him take a swim in the river. Mikey proposes to sell you his portfolio at a price of $100,000. Mikey's portfolio includes the following:

a) 40 zero coupon bonds with a $1,000 face value and 12 years to maturity. The YTM on these bonds is 7.0% (assume annual compounding).

b) 60 bonds with a $1,000 face value and a coupon rate of 5.0%. These bonds have 8 years to maturity and pay coupons on a semiannual basis. The YTM of these bonds is 6%.

c) 120 shares of Hill Corp. stock. Hill Corp expects to pay a quarterly dividend of $1.50 in 3 months, has a quarterly growth rate of 2%, and a required return of 4% per quarter.

How good of a deal is Mikey offering you for his portfolio? Clearly show your reasoning here with supporting calculations.

Reference no: EM132991194

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