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An investor needs an allocation plan for his retirement funds. He has 600K dollars to invest in bonds. The table below provides the bond options, classification, and annual return rates. Risk is based on default rates and the rate is 1% for A bonds, 5% for B bonds, and 12% for C bonds. The investor wants to maximize expected returns keeping its exposure to a maximum average 7% default rate. Also Corporate bonds must be at least 30% of the portfolio, and the total invested in Municipal bonds must be less than or equal the total invested in Government bonds. Name Type Rating Return Rate B1 Corp A 3.5% B2 Corp B 4.2% B3 Municipal A 2.7% B4 Municipal C 8% B5 Government A 3.9% B6 Government C 6.8% B7 Corp B 5%.
Discuss impact each of following will have, in general, on EVE sensitivity to change in interest rates. Consider two cases where rates rise sharply-fall sharply
Analyze the two proposals using Net Future Worth Analysis.
Find the payment that should be used for the annuity due whose future value is given. Assume that the compounding period is the same as the payment period. $8000; quarterly payments for 8 years; interest rate 4.1%.
Which rate of return does the investor expect to receive on this stock if the stock is purchased today?
Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $93, $312, and $78, respectively. Assume that Able undergoes a 1-for-2 reverse stock split. What is the divisor?
Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,600,000 and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $195,000 per year. Machine B costs $5,20..
What is your company’s weighted average flotation cost, assuming all equity is raised externally?
Shaylea, age 22, just started working full-time and plans to deposit $5,000 annually into an IRA earning 88 percent interest compounded annually. Deposits will be made at the end of each year. How much would she have in 20 years, 30 years, and 40 yea..
What was your total profit or loss on the settlement day if you had to cover your position in the spot market?
CALCULATING PROJECT FCF In the spring of 2015, Jemison Electric was consider-ing an investment in a new distribution center. calculate the project’s annual project free cash flows (FCFs) for each of the next five years where the salvage value of oper..
An investor purchases a stock for $52 and a put for $.60 with a strike price of $50. The investor sells a call for $.60 with a strike price of $58. What is the maximum profit and loss for this position?
Verizon Phone Company, an American firm, is estimating their profit in Germany for next year. They are predicting sales in Germany of 200,000 units at 89 euros per unit. Their variable costs are 35 euros per unit and their fixed costs are 6,000,000 e..
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