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Today is 01/01/02. On 06/30/03 we will have to make a payment of $100. We can only invest in a risk-free pure discount bond (nominal $100) that matures on 12/31/02 and in a risk-free coupon bond, nominal $100, that pays an annual coupon (on 12/31) of 8% on the nominal value, and matures on 12/31/04. Assume a flat term structure of 7%.
a) How many units of each of the bonds should we buy in order to be immunized with respect to the duration?
b) In the context of the previous problem, suppose that right after the portfolio of bonds is formed, the interest rate goes up from 7% to 10%. Compute the new durations.
Which program is likely to better allow Gnuti citizens to smooth consumption? -Which program is likely to cost the Gnuti government less?
Over the last four years, the common stock of Plymouth Shippers has had an arithmetic average return of 9.3 percent. Three of those four years produced returns of 14.1 percent, 15.6 percent, and 3.4 percent, respectively. What is the geometric averag..
An investment project costs $10,000 and has annual cash flows of $2,960 for six years. What is the discounted payback period if the discount rate is zero percent? Discounted payback period years What is the discounted payback period if the discount r..
By what means can we determine whether a ratio result is good, bad, or indifferent ? In essence, list and briefly describe the criteria by which we can assess ratio results.
The transaction motive for holding cash refers to the need to have cash for which one of the following purposes?
The jocob chemical company is considering building a new potassium sulfate plant. - Calculate the plant's net investment.- what is the instlled cost of the plant for tax purposes?
You make a one-time deposit of $1,000 into an account (Account A) which pays out 8% effective annual interest at the end of each year. Each year, you take the interest payout and deposit it into an account (Account B) earning an effective annual inte..
The following data pertains to Zolar Corp., a manufacturer of ball bearings (dollar amounts in millions). Total Assets $6,840 Interest-Bearing Debt $3,562 Average Pre-tax borrowing cost 11.5% Common Equity: Book Value $2,560 Market Value $12,850 Inco..
Kanga Resorts is interested in developing a new facility in Asia. The company estimates that the hotel would require an initial investment of $14 million. The company expects that the facility will produce positive cash flows of $2.6 million a year a..
Tim Smith is shopping for a used car. He has found one priced at 6,000. The salesman has told Tim that if he can come up with a down payment of $1,300, the dealer will finance the balance of the price at an annual rate of 15% over 2 years (24 months)..
Vietnam's economy, which started overheating months ago, has begun to stabilize, but experts warn the government to stay the course as the global financial system is plunged into crisis. Suppose you were the Vietnamese finance minister, what would yo..
A garage band wants to hold a concert. The expected crowd is 3,000. The average expenditure on concessions is $15. Tickets sell for $10 each, and the band’s profit is 80% of the gate, along with concession sales, minus a fixed cost of $10,000. Develo..
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