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Elliot Karl is a 35-year old bank executive who has just inherit a large amount of money. Having spent several years in the bank's investment department, he is well aware of the concept of duration and decides to apply it to his bond portfolio. In particular, he intends to use $1 million of his inheritance to purchase four US Treasury bonds: 1) An 8.5%, 13-year bond that is priced at $1,045 to yield 7.47%. 2) A 7.875%, 15-year bond that is priced at $1,020 to yield 7.60%. 3) A 20-year zero-coupon stripped treasury that is priced at 202 to yield 8.22%. 4) A 24-year, 7.5% bond that is priced at $955 to yield 7.90%. a. Find the duration and the modified duration of each bond b. Find the duration of the whole bond portfolio if Elliot puts $250,000 into each of the four U.S. Treasury bonds. c. Find the duration of the portfolio if Elliot puts $360,000 each into bonds 1 and 3 and $140,000 each into bonds 2 and 4. d. Which portfolio in b or c question should he select if he thinks rates are about to head up and he wants to avoid as much price volatility as possible? Explain. From which portfolio does he make more in annual interest income? Which portfolio would you recommend, and why?
Discuss how a taxpayer’s tax basis in property received in a property transaction will be affected based on whether a property transaction results in gain exclusions or gain deferral.
The company had $660,000 of promotional sales in september. Prepare the journal enrty to record the sales.
Firms have more than one option for diversifying; among these options are the following: corporate entrepreneurship, strategic alliances, and mergers and acquisitions.
Consider ABC's levered beta is 1.15, the risk free rate is 7% and the expected market return (Rm) is 12%. What is the new cost of equity under the capital structure financed with 20% debt?
McCue Mining Corporation's ore reserves are being depleted, so the corporation's sales are falling. Also, its pit is getting deeper each year, so its costs are rising.
You sell 100 shares of PGD short at a price of $50 per share. How much is your initial margin, given margin requirements of 40%? If the stock declines to $30 per share, what is your percentage gain or loss on the initial equity?
Your employer contributes $25 a week to your retirement plan. Assume that you work for your employer for another twenty years and that the applicable discount rate is 5%. Given these assumptions, what is this employee benefit worth to you today?
Your firm has debt worth $200,000, with a yield of 9%, and equity worth $300,000. It is growing at a 5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%. What is the value of the firm according to MM with corp..
What is the appropriate discount rate for this project -A colleague argues that the project should not be taken because it is risky and the firm can't afford to take risks in a bad economy
The probability of a normal economy is 65 percent while the probability of a recession is 25 percent and the probability of a boom is 10 percent. What is the standard deviation of these expected returns?
a sinking fund can be set up in one of two ways1 the corporation makes annual payments to the trustee who invests the
what is its value if the previous dividend was D0=$2 and investors expect dividends to grow at a constant annual rate of (1) -5%, (2) 0%, (3) 5% or (4) 10%?
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