How would you construct your portfolio

Assignment Help Financial Management

Reference no: EM132030448

Your company asks you to manage a short-term guaranteed investment contract. Your job is to create a portfolio that has a 4-year duration.

(a) If you are given the choice of using a 5-year zero coupon bond and a 3-year 8% annual coupon bond with a yield to maturity of 10%, how would you construct your portfolio?

(b) What is the modified duration of that 3-year annual coupon bond in (a)? If the yield to maturity of that 3-year annual coupon bond decreases to 8.045%, how much percentage change in price would you expect to see using modified duration?

(c) Later you are moved to another department inside your company, and now you are maintaining a money market trading desk. In your portfolio, you have a 25-year maturity, 10% coupon, 10% yield bond with a duration of 10 years and a convexity of 135.5. If the interest rate were to fall 125 basis points due to Fed’s policy change, what is your predicted new price for the bond (including convexity)?

Reference no: EM132030448

Questions Cloud

How can the imputed negligence act be a problem : How can the imputed negligence act be a problem in an organization and give an example?

Paraphrase the content from the paragraph : Paraphrase the content from the paragraph you selected. You may want to later include it in the body of your literature review. Include appropriate citations.

Calculate incremental cash flows from accepting proposal : Calculate the incremental cash flows from accepting this proposal, and organize your cash flows from part A into a cash flow spreadsheet.

Explain the common motives for prejudice : Review Chapter 13 in your course text, Social Psychology, focusing on how people learn prejudice, common motives for prejudice, and the various theories.

How would you construct your portfolio : Your company asks you to manage a short-term guaranteed investment contract. how would you construct your portfolio?

How does attraction happen and how do relationships form : How does attraction happen and how do relationships form? Attraction and relationships are complex in that they are influenced by numerous factors, including.

Determine which alternative is less costly : Determine which alternative is less costly, based upon comparison of after-tax annual worth.

What are the residual cash flows to nittany : What are the residual cash flows to Nittany? What rate of return will be earned on the equity over collateralization?

Use straight-line depreciation : Use straight-line depreciation (no half-year convention) to find ATCF for each year

User Account

All Pages