Reference no: EM132652860

[1.] A fixed-income portfolio manager sets a minimum acceptable rate of return on the bond portfolio at 4.0% per year over the next 3 years. The portfolio is currently worth $10 million. One year later interest rates are at 5.0%. What is the portfolio value trigger point at this time that would require the manager to immunize the portfolio?

a. $11,248,640

b. $10,202,848

c. $9,716,998

d. $10,400,000

[2] Assume you have a one-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has a 7.5% coupon rate and pays the $75 coupon once per year. The third has a 9.5% coupon rate and pays the $95 coupon once per year. Assume that all bonds are compounded annually.

a. If all three bonds are now priced to yield 7.5% to maturity, what are their prices? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Zero / 7.5% Coupon / 9.5% Coupon

Current Prices ________ _________ _______

b. If you expect their yields to maturity to be 7.5% at the beginning of next year, what will their prices be then? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Zero / 7.5 % Coupon / 9.5% Coupon

Price one year from Now _________ ____________ ____________

c. What is your rate of return on each bond during the one-year holding period? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Zero / 7.5% Coupon / 9.5% Coupon

Rate of Return _________ ____________ ___________