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You are managing a portfolio of $1 million. Your target duration is 10 years, and you can choose from two bonds: a zero-coupon bond with maturity of 5 years, and a perpetuity, each currently yielding 5.4%.
a. What weight of each bond will you hold to immunize your portfolio? (Round your answers to 2 decimal places. Omit the "%" sign in your response.)
Zero-coupon bond %
Perpetuity bond %
b. How will these weights change next year if target duration is now 9 years? (Round your answers to 2 decimal places. Omit the "%" sign in your response.)
Prpetuity bond %
Consider a 12-year loan with annual payments at 5%. If the loan amount is $250,000, compute the interest paid in the eighth year.
Which of the following will increase the future value of a lump sum investment? I. Decreasing the interest rate II. Increasing the interest rate III. Increasing the time period IV. Decreasing the amount of the lump sum investment
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Although Wagner considers a further decline in F&F’s situation to be unlikely, the possibility does exist that after six months the stock would fall to $10. What impact would that have on the prices of the various securities?
On May 8, 2013, an investor owns 100 Google shares. As indicated in Table 1.3, the share price is about $871 and a December put option with a strike price $820 costs $37.50. The investor is comparing two alternatives to limit downside risk. Discuss t..
Outdoors sells specialty tents for mountain climbers. Its sales for last year included $99,000 of tents and $148,000 of climbing gear. For next year, management has decided to sell specialty sleeping bags also. As a result of this change, sales proje..
How much can the 10-year treasury interest rate increase before you can’t afford to make the monthly payments?
Twice Shy Industries has a debt-equity ratio of 1.6. Its WACC is 8.6 percent, and its cost of debt is 6.1 percent. What is the company’s cost of equity capital?
On March 5, 2013, the Dow Jones Industrial Average set a new high. The index closed at 17,634.53, which was up 145.00 that day. What was the return (in percent) of the stock market that day?
A firm has a WACC of 10% until it has raised $100 million. Beyond that the WACC is 12%. The firm has the following projects and associated costs: Project A has a cost of $50 million and an IRR of 14%; project B has a cost of $70 million and an IRR of..
You sold five put contracts on CTB stock at an option price per share of $1.90. The options have an exercise price of $45 per share. The options were exercised today when the market price was $39 a share. What is your net profit or loss on this inves..
Discuss some financial variables that affect the price-earnings ratio - What is the difference between book value per share of common stock and market value
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