Which portfolio would likely suffer greatest loss in value

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Reference no: EM131918615

1. If the yield curve moved up by 1% in a parallel manner, which portfolio would likely suffer the greatest loss in value/price ?

A. ladder

B. bullet

C. barbell

Please Explain

2. The Anderson Company Ltd. (ACL) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6%. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company. ACL's current cost of equity is 8.8%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $60.00.

Now, assume that ACL is considering changing from its original capital structure to a new capital structure that results in an increased cost of equity to 9.5%. The resulting capital structure would have a $402,684.60 total market value of equity and a $604,026.80 market value of debt. How many shares would ACL repurchase in the recapitalization?

a) 5,008

b) 4,500

c) 6,000

d) 4,250

e) 4,750

Reference no: EM131918615

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