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- You are managing a portfolio of £20 million. Your target duration is 6 years, and you can choose from two bonds: a zero-coupon bond with 3 years of maturity and a perpetuity, each currently yielding 5%. Next year, the target duration is 5 years. What is the portfolio weight invested in the perpetuity?You are managing a portfolio of $1 million. Your target duration is 10 years, and you can invest in two bonds, a zero-coupon bond with maturity of five years and a perpetuity, each currently yielding 5%.a. How much of (i) the zero-coupon bond and (ii) the perpetuity will you hold in your portfolio?b. How will these fractions change next year if target duration is now nine years?You have a portfolio of 500 zero coupon bonds each with 4 years maturity, and 300 zero coupon bonds each with a 12 years maturity. Assume that 4-years spot rate is 4% and the 12 years spot rate is 5.5%. a. The duration of your bond portfolio is (rounded to two digits accuracy)
- You are looking to create a bond portfolio with the following investments: • 50 zero coupon bonds with a $1,000 face value and 5 years to maturity. The YTM on these bonds is 5% (assume annual compounding here). • 50 bonds with a $1,000 face value and a coupon rate of 10%. These bonds have 8 years left to maturity and pay coupons on a semiannual basis. The YTM of these bonds is 8%. What is the current market value of the portfolio?Assume you have a 1-year investment horizon and are trying to choose among threebonds. All have the same degree of default risk and mature in 10 years. The first is azero-coupon bond that pays $1,000 at maturity. The second has an 8% coupon rateand pays the $80 coupon once per year. The third has a 10% coupon rate and paysthe $100 coupon once per year.1. If all three bonds are now priced to yield 8% to maturity, what are their prices?2. If you expect their yields to maturity to be 8% at the beginning of next year, whatwill their prices be then? What is your before-tax holding-period return on eachbond? If your tax bracket is 30% on ordinary income and 20% on capital gainsincome, what will your after-tax rate of return be on each?3. Recalculate your answer to (2) under the assumption that you expect the yields tomaturity on each bond to be 7% at the beginning of next year.Suppose you purchase a $1,000 bond with a coupon rate of 8% matures in 5 years at par, and you plan to sell it at the end of 3 years at the prevailing market price. When you purchase the bond, your investment advisor predicts that similar bonds with 2 years to maturity yield at 6%. What is the expected yield to maturity on the bond?
- You are managing a portfolio of $2 million. Your target duration is 13.5 years, and you choose to invest in a combination of a zero coupon bond with maturity six years and a perpetuity, each currently yielding 5%. The amounts of investment in the zero coupon and the perpetuity should be: $625,000 and $1,375,000 $1,375,000 and $625,000 $2,000,000 and $0 $1,000,000 and $1,000,000You are managing a portfolio of $1.0 million. Your target duration is 16 years, and you can choose from two bonds: a zero-coupon bond with maturity five years and a perpetuity, each currently yielding 5%. Required: a. How much of (i) the zero-coupon bond and (ii) the perpetuity will you hold in your portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. How will these fractions change next year if target duration is now fifteen years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)Suppose you purchase a 30-year, zero-coupon bond with a face value of $100 and a yield to maturity of 6%. You hold the bond for five years before selling it. If the bond’s yield to maturity is 5% when you sell it, what is the internal rate of return of your investment?
- Assume you have a 1-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 8% coupon rate and pays the $80 coupon once per year. The third has a 10% coupon rate and pays the $100 coupon once per year.a. If all three bonds are now priced to yield 8% to maturity, what are the prices of: (i) the zero-coupon bond; (ii) the 8% coupon bond; (iii) the 10% coupon bond?b. If you expect their yields to maturity to be 8% at the beginning of next year, what will be the price of each bond?c. What is your before-tax holding-period return on each bond? d. If your tax bracket is 30% on ordinary income and 20% on capital gains income, what will be the after-tax rate of return on each bond?e. Recalculate your answers to parts (b)–(d) under the assumption that you expect the yields to maturity on each bond to be 7% at the…Assume you have a 1-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 7.6% coupon rate and pays the $76 coupon once per year. The third has a 8.6% coupon rate and pays the $86 coupon once per year. a. If all three bonds are now priced to yield 6% to maturity, what are the prices of: (i) the zero-coupon bond; (ii) the 7.6% coupon bond; (iii) the 8.6% coupon bond? Answer to a Current Prices Zero Coupon= $558.39 7.6% = $1117.76 8.6%= $1191.36 Need answers to part d and eAn investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 10 years, while Bond S matures in 1 year. What will the value of the Bond L be if the going interest rate is 6%, 7%, and 12%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 10 more payments are to be made on Bond L. Round your answers to the nearest cent. 6% 7% 12% Bond L $ $ $ Bond S $ $ $ Why does the longer-term bond’s price vary more than the price of the shorter-term bond when interest rates change? Long-term bonds have lower reinvestment rate risk than do short-term bonds. The change in price due to a change in the required rate of return increases as a bond's maturity decreases. Long-term bonds have greater interest rate risk than do short-term bonds. The change in price due to a change in the required rate of return decreases as a bond's maturity increases. Long-term bonds have…