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You manage a pension fund, which provides retired workers with lifetime annuities. The fund must pay out $1 million per year to cover these annuities. Assume for simplicity that these payments continue for 20 years and then cease. The interest rate is 4% (flat term structure). You plan to cover this obligation by investing in 5- and 20-year maturity Treasury strips.
(a) What is the duration of the funds 20-year payout obligation?
(b) You decide to minimize the funds exposure to changes in interest rates. How much should you invest in the 5- and 20- year strips? What will be the par value of your holdings of each strip?
(c) After three months, you reexamine the pension funds investment strategy. Interest rates have increased. You still want to minimize exposure to interest rate risk. Will you invest more in 20-year strips and less in 5-year strips? Explain briefly.
Determine the two most critical financial ratios for you to monitor at your facility, and indicate how each of these ratios would help you assess the current performance of your facility. Provide support for your rationale.
If the cost of common equity for the firm is 20.2%, the cost of preferred stock is 11.7% and the before tax cost of debt is 10.9 %, what is Jowers cost of capital? The firm's tax rate is 34%. Round to 3 decimal places.
a. Describe the characteristics of unsatisfied judgment funds. b. How are unsatisfied judgment funds financed?
a hospital has contracted with an hmo to provide acute care inpatient services for 1000 per day subject to a 10 percent
The use of debt intensifies the firm's business risk borne by the common stockholders. As a result, shareholders of a firm with higher debt ratio would require a higher return compared to a similar firm without debt
assume the initial margin on a eurodollar futures contract is 878 and the maintenance margin is 650 the contract size
What is capital rationing? If we have capital rationing, which method of project evaluation is mostly used?
What is the aftertax cost of debt? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16)) Cost of debt %
Last five years, National Widget company has had a PE ratio of 23. The company's current market price is $43 per share. The company announced todat that its EPS for the past year was $1.80.
You own 25% of Unique Vacations, Inc. You have decided to retire and want to sell your shares in this closely held, all equity firm. The other shareholders have agreed to have the firm borrow $1.5 million to purchase your 1,000 shares of stock.
There was no opening inventory of the raw materials. You are required to prepare the stores ledger accounts when issues are priced, respectively, according to
You sold all stocks today for $66.80. During that period the stock paid dividends of $2.29 per share. What is your annualized holding period return (annual percentage rate)?
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