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Suppose Metro Bank's asset portfolio has a market value of $1B and a duration of 2 scars and its portfolio of liabilities has a market value of $900M and a duration of 3 years. The current interest rate is 5%.
What would be Metro's loss or gain if interest rates fall by 100bp? How would you reduce Metro's exposure to interest rate risk? Reason.
Specify the formulas you use. Specify the units of the variables you measure. Explain how your recommendation would reduce interest rate risk exposure.
What is the effective interest rate of 10 percent compounded quarterly, versus 10 percent compounded monthly?
How much should he deposit at the end of each month into an annuity paying 2.7% interest compounded monthly in order to accumulate the required savings?
If the required return is 11 percent, and the company just paid a dividend of $3.10, what is the current share price?
Start with the partial model in the file Ch18 P08 Build a Model.xls on the textbook’s Web site. Schumann Shoe Manufacturer is considering whether or not to refund a $70 million, 10% coupon, 30-year bond issue that was sold 8 years ago. Conduct a comp..
What are the implications of the efficient market hypothesis to both stock selectors and market timers?
The discount rate is 5%. What is today’s per share value of Clapton, Inc. stock?
You have discovered that when the required rate of return on a bond you own fell by 0.5 percent from 9.9 percent to 9.4 percent, the fair present value rose from $955 to $980. What is the duration of this bond? Assume annual payments.
What is the probability that you will lose your entire investment if the returns among the 10 stocks are uncorrelated (independent)?
Montgomery College is evaluating making an investment with a portion of the principle from its endowment fund. Calculate the investment's expected return if there's a 40% probability of a 10% return, a 30% probability of a 9% return, and a 15% probab..
The WedLink Company is considering the possibility of developing a new wedding planning website.
Magnus Credit Corp. wants to earn an effective annual return on its consumer loans of 17.75 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers?
What is the yield to maturity on a Treasury STRIPS with 11 years to maturity and a quoted price of 63.695?
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