Tax-exempt fund is considering investing

Assignment Help Financial Management
Reference no: EM13976511

(a) The portfolio manager of a tax-exempt fund is considering investing $500,000 in a debt instrument that pays an annual interest rate of 5.7% for four years (annual compounding). At the end of four years, the portfolio manager plans to reinvest the proceeds for three more years and expects that for the three-year period, an annual interest rate of 7.2% can be earned (annual compounding). What is the future value of this investment?

(b) Suppose that the portfolio manager in part a has the opportunity to invest the $500,000 for seven years in a debt obligation that promises to pay an annual interest rate of 6.1% compounded semiannually. Is this investment alternative more attractive than the one in part a?

Reference no: EM13976511

Questions Cloud

What is the total return for this bond : Suppose that an investor with a five-year investment horizon is considering purchasing a seven-year 9% (annual rate) coupon bond selling at par. The investor expects that he can reinvest the coupon payments at an annual interest rate of 9.4% and that..
What statistical test would you use to measure : What statistical test would you use to measure differences between the groups and why?
What is the yield to maturity for this bond : First, find the price of the following Bond X. The interest rate on the bond is 8%, paid semi-annually and the market yield is 9%. The maturity is 10 years. Second, assume Bond Y has the same price as calculated above. Based upon this bond price, and..
What is the price that he should pay for the bond : The Treasury department issued a 10-year bond on January 1, 2015. The par value is $1,000 and the annual coupon rate is 10%. The bond pays two coupons every year, one at the end of June and one at the end of December. The required annual yield is 8%...
Tax-exempt fund is considering investing : The portfolio manager of a tax-exempt fund is considering investing $500,000 in a debt instrument that pays an annual interest rate of 5.7% for four years (annual compounding). Suppose that the portfolio manager in part a has the opportunity to inves..
Capital budget be before common stock : JPR company is financed 75% by equity and 25% by debt. if the firm expect to earn 30 million in net income next year and retain 40% of it, how large can the capital budget be before common stock must be sold ? 15.5 million 7.5 million 16.0 million 12..
What is the federal funds rate and target rate : What is the federal funds rate? What is the federal funds target rate? What is federal funds effective rate? The FOMC uses the open market operation to ensure that the effective federal funds rate fluctuates closely around the target. What is the cur..
You are a manager in a multi-national manufacturing company : Case study scenario: You are a manager in a multi-national manufacturing company who has been sent to set up a large subsidiary in South Africa. Prepare a management report for the Chief Executive Officer (CEO) of the company giving your recommendati..
An investment offers : An investment offers $3,300 per year for 19 years, with the first payment occurring one year from now. If the required return is 8 percent, the present value of the investment is $___. If the payments occurred for 34 years, the present value of the i..

Reviews

Write a Review

Financial Management Questions & Answers

  An important source of temporary cash is trade credit

Community Hospital has annual net patient revenues of $150 million. At the present time, payments received by the hospital are not deposited for six days on average. An important source of temporary cash is trade credit, which does not actually bring..

  Arbitrage transactions costs involving futures contract

Assume that the 3-month futures contract on SPX settled at 2070, r = 0.25%, q = 2.25%, arbitrage transactions costs (TC) involving these futures contract are 1.16 (index points). The TC band is [2060.84, 2058.52]. Therefore, the index (SPX) must have..

  What is the cost of the preferred stock

Burnwood Tech plans to issue some $56.65 par preferred stock with a 6.87% dividend. A similar stock is selling on the market for $50.45. Burnwood must pay flotation costs of 9.69% of the issue price. What is the cost of the preferred stock?

  Growing quickly-what is the current share price

Jen's Fashions is growing quickly. Dividends are expected to grow at a 19 percent rate for the next 3 years, with the growth rate falling off to a constant 8 percent thereafter. The required return is 12 percent and the company just paid a $3.80 annu..

  What is the payback period for this project

McKenna Sports Authority is getting ready to produce a new line of gold clubs by investing $1.85 million. The investment will result in additional cash flows of $525,000, $827,500, and $1,245,000 over the next three years. What is the payback period ..

  Calculate the total fees you will pay on loan commitment

A loan commitment of $4.32 million has an up-front fee of 80 basis points and a back-end fee of 50 basis points. The take down on the loan is 60 percent. Calculate the total fees you will pay on this loan commitment.

  Define the financial planning process for most organizations

Determine the key factors that will drive the financial planning process for most organizations in the post-merger phase, and examine the related impact to the organization process. Provide support for your rationale.

  Methods in the proportion of fair ratings

Using a 0.05 level of significance, is there evidence of a significant difference between the two methods in the proportion of fair ratings?

  Anything regarding its product or operations

Without changing anything regarding its product or operations, the CEO of a company wants to increase the ROE of his company. What could he possibly do? Be sure to state the steps.

  What do you believe is a fair market price for the stock

Under these circumstances, would you purchase this stock? What do you believe is a fair market price for the stock?

  What do you mean by financial index and commodity

what do you mean by financial index and commodity index?method of index uses in calculation?weighted average method?how

  Entire return from dividends is most likely proponent

In investor who requires a 12% percent return for a stock that pays no dividends and requires a 9% return for a stock that pays its entire return from dividends is most likely a proponent of

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd