2. Given are the following bonds : Bond A B C Duration 5 10 12 Construct 2 different portfolios of the 3 bonds, each with a duration of 9 years. (Assume no short selling is allowed).
Q: Your cousin is currently 12 years old. She will be going to college in 6 years. Your aunt and uncle…
A: The concept of time value of money will be used and applied here.As per the concept of time value of…
Q: I am buying a firm with an expected perpetual cash flow of $900 but am unsure of its risk. If I…
A: Expected perpetual cash flow =$900 Actual beta=1Assumed Beta=0Risk-free rate =6%Expected rate of…
Q: Valuation Using Balance Sheet Multiples The following table provides summary data for Guess? Inc.…
A: In a trading comparable approach of stock valuation, we derive the value of the stock using a…
Q: A corporate bood matures an 15 years. The bood has an 2 $1,175 What is the yield to call for this…
A: Here,ParticularsValuesFace value of the bond $1,000.00Time to maturity15.00Coupon rate7.00%Time to…
Q: 5 The interest rate for the first five years of a $28,000 mortgage loan was 3.35% compounded…
A: Monthly payment refers to the amount that is paid at every month for the repayment of loan amount…
Q: Assuming a 12% annual interest rate, determine the present value of a five-period annual annuity of…
A: 1. Present value of annuity when payments are made at the end of year.PV = A * where,PV = Present…
Q: Kale Inc. forecasts the free cash flows (in millions) shown below. Assume the firm has zero…
A: Weighted Average Cost of Capital = r = 11%Growth rate after year 2 = g = 5%Free cash flow in Year 1…
Q: The Belichick Hoodie Co. just paid a dividend of $3.96 per share on its stock. The dividends are…
A: We have provided the annual dividend paid per share, expected dividend growth rate and the current…
Q: Kim is shopping for a car. She will finance $14,000 through a lender. The table to the right shows…
A: Interest is required to be paid on amount of loan taken.Repayments of loan can be monthly ,…
Q: Based on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for…
A: Given details from the question:
Q: Break-even EBIT (with and without taxes). Alpha Company is looking at two different capital…
A: In Order to calculate EBIT or earning before interest and tax we need to understand the capital…
Q: Problem 9-14 Project Evaluation [LO 2] Dog Up! Franks is looking at a new sausage system with an…
A: The Net Present Value refers to the difference between the present value of cash inflows and cash…
Q: For the sake of discussion, Jones put together some comparative two-year performance numbers that…
A: Passively managed funds are those funds that are linked to the performance of a particular benchmark…
Q: rockett Graphic Designs Inc. is considering two mutually exclusive projects. Both projects require…
A: Project A-Using a financial calculator, input the following data-CF0= -11000, CF1= 6000, CF2= 8000…
Q: All computations and Formula must be done and shown in detail A stock repurchase carries…
A: Stock repurchase, also known as share buyback, refers to when a company buys its own outstanding…
Q: Dyson Inc. Perpetual preferred stock sells for $75 per share, has a par value of $100, and pays a…
A: Preference Share are the unit of shares that are weighted with preference over common stock in the…
Q: The market price of a semi-annual pay bond is $980.18. It has 18.00 years to maturity and a coupon…
A: risk of Interest , risk of credit, risk of inflation in market are some of the hazards associated…
Q: Problem 9.21 (Nonconstant Growth) Question. D2025-$ D2026-$ Check My LO eBook Assume that it is now…
A: In this question we need to calculate dividend expected dividend for 2022, 2023, 2024, 2025, 2026…
Q: The Superior Tool Company is repaying a debt of $16,000 by payments of $1000 (a) How many payments…
A: Debt is loan that carry the interest rate on that but these are paid by periodic payment that carry…
Q: You have the following data for your company. Market Value of Equity: $520 Book Value of Debt:…
A: The WACC of a company refers to the return that the company provides on average to its stakeholders…
Q: An entrepreneur is considering opening a a big store that has a bakery, brewery, and grocery store…
A: Capital budgeting refers to the financial technique used for evaluating the viability of the project…
Q: you have $500000 saved for retirement. Your account earns 3.8% interest. How much will you be able…
A: The present value of an annuity refers to the current value of a series of equal cash flows or…
Q: The balance sheet of QUIGGE and get the end of the current fiscal year indicated the following bonds…
A:
Q: Suppose the following exchange rate quotations are available: Citibank quotes U.S. dollars per Euro:…
A: The cross rate refers to the exchange rate between two currencies calculated through a third common…
Q: Payback (S5.2) a. What is the payback period on each of the following projects? Project A B C -5,000…
A: The term payback period refers to the amount of time it takes to recover the cost of an investment.…
Q: Procter and Gamble (PG) paid an annual dividend of $ 2.82 in 2021. You expect PG to increase its…
A: In the given case, we have provided the annual dividend paid per share and the expected growth rate…
Q: You borrow $145,000 and must make annual loan payments of $11,635.18 for 20 years, starting at the…
A: Future Value = fv = $145,000Payment = pmt = $11,635.18Time = nper = 20 yearsPresent Value = pv = 0
Q: Wizard Inc. has to choose between two mutually exclusive projects. If it chooses project A, Wizard…
A: For Project A the same investment can be made again in the end of year 3 at same value.Hence the…
Q: ou have just borrowed $20,000 on a 10 year loan at 8% simple interest. Complete the Amortization…
A: The amortization table represents a schedule comprising periodic payments, principal payments,…
Q: IRR (S5.3) a. Calculate the net present value of the following project for discount rates of 0, 50,…
A: Capital budgeting provides modern methods like net present and internal rate of return to determine…
Q: Problem 11-30 Systematic versus Unsystematic Risk [LO 3] Consider the following information on…
A: ABCDE1 Probability (p) Return (r) (s) = (p) * (r)(q) = (r) - (Er)(v) = (q)2 * (p)…
Q: 7. Future values (S2.1) Compute the future value of a $100 investment for the following combinations…
A: The future value represents the expected worth of the present sum of the amount. It is estimated by…
Q: You want to purchase a new car and you are willing to pay $25,000. If you can invest at 10% per year…
A: Car Price = Fv = $25,000Amount available = PV = $20,000rate of interest = r = 10%FV = PV (1 +…
Q: The following questions are Multiple Choice: You have been asked by the president of your company to…
A: NPV is Net present value which can be determined by discounting all future cash flows at required…
Q: Consider the following simplified financial statements for the Fire Corporation (assuming no income…
A: The problem requires the calculation of external financing needed. The external financing needed is…
Q: What amount needs to be deposited into an account earning 4.3% interest compounded annually to have…
A: Present value is an estimate of the present value of future cash values that may be received at a…
Q: Benefits of diversification. Sally Rogers has decided to invest her wealth equally across the…
A: Expected return refers to the probable return of each asset considered with the probability under…
Q: WACC and target weights After careful analysis, Dexter Brothers has determined that its optimal…
A: The desired rate of return on investments that a corporation must achieve in order to preserve or…
Q: The December 31, 2021, balance sheet of Chen, Incorporated, showed long-term debt of $1,470,000,…
A: Operating cash flow, also known as cash flow from operations (CFO), is a measure that reflects the…
Q: Capital rationing (S5.4) Suppose you have the following investment opportunities, but only $90,000…
A: We can evaluate each project on the basis of profitability index(PI) which shows profit per dollar…
Q: A stock has a beta of 1.21 and an expected return of 11.9 percent. A risk-free asset currently earns…
A: Beta of portfolio = 2.41Stock beta = 1.21Stock A expected return = 11.9%Risk-free asset return =…
Q: All corporate bonds coupons are payable by cash only. True False
A: Corporate bonds are financial instruments that companies issue to raise money for a variety of…
Q: C. Recently, Emily won a lottery with the amount of RM50,000. She quickly bought a share of LUSTER…
A: Call option provides the buyer the right and not obligation to buy underlying asset at the specified…
Q: WRE is currently trading at $120/share. You sold 8 PUT-option contracts on WRE with a strike price…
A: Current Price = $120No of Put Options = 8Strike Price = $110Premium = $8
Q: Suppose you invest $3,800 today in an account that earns a nominal annual rate (inom) of 12 percent,…
A: Compound = Quarterly = 4Present Value = pv = $3800Interest rate = r = 12 / 4 = 3%Time = t = 12 * 4 =…
Q: Year 1 2 3 Net Income 1,500,000 1,750,000 3,800,000 Depreciation 2,000,000 2,000,000 0…
A: Unlevered free cash flows are cash flows available with the firm after it accounts for working…
Q: Which of the following multiples are well-constructed for valuing either the enterprise or equity…
A: Enterprise value is a comprehensive measure that represents the total value of a company taking into…
Q: By what date will $800 deposited on February 5, 1994, be worth $1643.352 at 12% compounded daily? [1…
A: Future value refers to the value of all future cash flow or the lumpsum amount in the annuity is…
Q: Garrett is considering investing in a project that has a cost of $40,000 at t=0, is expected to…
A: Here we are using capital budgeting tools like IRR, MIRR etc.These capital budgeting tools are used…
Q: Rewrite the fraction in the sentence below as a percentage. At a certain wedding, (11)/(20) of the…
A: Fractions and percentages are two of the different ways to present the data.For example, a 1/10…
Step by step
Solved in 3 steps
- Consider the following two-bond portfolio of option-free bonds; Bond A Bond BYears to maturity 5 years 10 yearsCoupon rate 5% 5%Par value 1000 1000Yield to maturity 8% 6%Par amount owned R3,45 million R2 millionMarket value R30 367.59 (in 000’s) R18 528 (in 000’s) Required:a) Without doing any calculations, which bond would have a higher durationb) Assuming that Bond A is an option-free bond, calculate the bond’s modified duration using Macauly’s Duration.c) Assume that the duration of Bond A and B is 4.2 and 7.5 respectively; determine the duration of the portfolio.2. A bond pays semi-annual coupons with c(2) = .085. Assume the face value equals $10,000 and matures in 4 years. The YTM of the bond is given as i(2) = .07. Construct the amortization table for this bond. 3. Calculate the price of the bond in problem #2 above at time t=1/2.If the YTM on the following bonds are identical except, what is the price of bond B? Bond A Bond B Face value $1,000 $1,000 Semiannual coupon $45 $35 Years to maturity 20 20 Price $1,098.96 ?
- A $1,000, 5%, 20-year annual-pay bond has a yield-to-maturity (YTM) of 6.5%. if the YTM remains unchanged, how much will the bond value increase over the next three years? A. $13.44 B. $13.62 C. $13.78 D. $13.9622) Consider the following two-bond portfolio of option-free bonds;Bond A Bond BYears to maturity 5 years 10 yearsCoupon rate 5% 5%Par value 1000 1000Yield to maturity 8% 6%Par amount owned for Bond A: R3,45m For bond B:R2mMarket value :Bond A:R30 367.59 (in 000’s) Market value:Bond B:R18 528 (in 000’s) Required:a) Without doing any calculations, which bond would have a higher duration b) Assuming that Bond A is an option-free bond, calculate the bond’s modified duration using Macauly’s Duration. c) Assume that the duration of Bond A and B is 4.2 and 7.5 respectively; determine the duration of the portfolio.4) Bonds A and B are selling at par value, and each has 10 years to maturity. Bond A has a coupon rate of 5%, and bond B has a coupon rate of 15%. Which of the following is true about the durations of these bonds? A) The duration of the higher coupon bond will be higher. B) There is no consistent statement that can be made about the durations of the bonds. C) The duration of the A bond will equal the duration of B coupon bond. D) The duration of the lower coupon bond will be higher Provide accurate answer with justification.
- You have the following information regarding an annual bond. What is the modified duration of this bond? Payment $40 YTM 6.5% Maturity (in years) 19 Par value $1,000If 10-year T-bonds have a yield of 4.0%, 10-year corporate bonds yield 7.6%, the maturity risk premium on all 10-year bonds is 1.3%, and corporate bonds have a 0.23% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond? Round 2 decimal placesConsider the following three-bond portfolio in which all the bonds are option free: Bond Price Par Value Yield Market Value Duration 9% 5-year $122.4565 $5 million 4% $6,122,823 4.142 5% 20-year $113.6777 $2 million 4% $2,273,555 13.087 5.5% 30-year $126.0707 $2 million 4% $2,521,413 16.290 What is Bond 1’s (9% 5-year) contribution to portfolio duration? A. 3.23 B. 2.33 C. 4.33 D. 3.00
- Inc.'s 5-year bonds yield 6.85%, and 5-year T-bonds yield 4.6%. The real risk-freerate is 2.75%, the default risk premium for Crockett's bonds is DRP = 1.35% versus zero for T-bonds, theliquidity premium on Crockett's bonds is LP = 0.90% versus zero for T-bonds, and the maturity riskpremium for all bonds is found with the formula MRP = (t – 1) × 0.1%, where t = number of years tomaturity. What inflation premium (IP) is built into 5-year bond yields?All other things equal(YTM = 10%), which of the following has the shortest duration? Group of answer choices A. A 20-year bond with a 7% coupon B. A 10-year zero-coupon bond C. A 20-year bond with a 9% coupon D. A 30-year bond with a 10% couponA fixed-income analyst, Sean, observes a 7-year, 8% semiannual-pay bond. the face amount is ¥1,000. He believes that the yield-to-maturity (YTM) on a semiannual bond basis should be 12.29%. Based on this yield estimate, the price of this bond would be A. ¥942.73. B. ¥900.89. C. ¥828.39. D. ¥802.40.