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A portfolio manager owns $6 million par value of bond ABC. The bond is trading at 80 and has a modified duration of 7. The portfolio manager is considering swapping out of bond ABC and into bond XYZ. The price of this bond is 75 and it has a modified duration of 3.5.
(a) What is the dollar duration of bond ABC per 100-basis-point change in yield?
(b) What is the dollar duration for the $5 million position of bond ABC?
(c) How much in market value of bond XYZ should be purchased so that the dollar duration of bond XYZ will be approximately the same as that for bond ABC?
What is the nominal cost of trade credit?
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If investors feel this growth rate will continue, what is the required return for Palm Coal stock?
Determine the NPV under these conditions. Rather than use all cash, Cantoon could partially finance the acquisition. It could obtain a loan of 3 million euros today that would be used to cover a portion of the acquisition.
Suppose that Acme Inc. is issuing 10-year bonds that are not callable. The required rate of return that the firm must pay to bondholders is 10%. They are also considering some callable bonds, which are identical to the proposed issue, but will be cal..
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