Use the following information for questions 34 through 39. A$100 million portfolio consists of 35 million of stock 'with a betaof 1 and 65 million of bonds at a modified duration of 8. As aportfolio manager, you'd like to change the allocation to 50million of stock and 50 million of bonds. In addition, you'd liketo adjust the beta to 1.2 and the modified duration to 7.25. Astock index futures contract has a price of $225,000 and wecan assume the beta is 1. A bond futures contract is priced at$92,000 with an implied modified duration of 5.9. If you want tosynthetically sell 15 million of bonds, how many futurescontracts should you transact?Select one:O a. Buy 173 contractsO b. Sell 123 contractsc.Sell 173 contractsO d. Buy 123 contracts

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Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter11: Simulation Models

Section11.3: Financial Models

Problem 23P: Suppose you currently have a portfolio of three stocks, A, B, and C. You own 500 shares of A, 300 of...

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Suppose you currently have a portfolio of three stocks, A, B, and C. You own 500 shares of A, 300 of B, and 1000 of C. The current share prices are 42.76, 81.33, and, 58.22, respectively. You plan to hold this portfolio for at least a year. During the coming year, economists have predicted that the national economy will be awful, stable, or great with probabilities 0.2, 0.5, and 0.3. Given the state of the economy, the returns (one-year percentage changes) of the three stocks are independent and normally distributed. However, the means and standard deviations of these returns depend on the state of the economy, as indicated in the file P11_23.xlsx. a. Use @RISK to simulate the value of the portfolio and the portfolio return in the next year. How likely is it that you will have a negative return? How likely is it that you will have a return of at least 25%? b. Suppose you had a crystal ball where you could predict the state of the economy with certainty. The stock returns would still be uncertain, but you would know whether your means and standard deviations come from row 6, 7, or 8 of the P11_23.xlsx file. If you learn, with certainty, that the economy is going to be great in the next year, run the appropriate simulation to answer the same questions as in part a. Repeat this if you learn that the economy is going to be awful. How do these results compare with those in part a?
You currently own 600 shares of JKL, Inc. JKL is an all-equity firm that has 75,000 shares of stock outstanding at a market price of $40 a share. The company’s earnings before interest and taxes are $140,000. JKL has decided to issue $1 million of debt at 8 percent interest. This debt will be used to repurchase shares of stock. If the cost of equity is 25%, the WACC is 16% and cost of debt is 10%, what will be the implied D/E ratio?
A. Write a document with the following information: 1. What do you expect your job to pay when you start? 2. What benefits are musts for you? 3. What benefits would you like to have even though they are not musts? 4. Include the graph you generate in step B below. B. Create a spreadsheet and a graph of life vs funds For each year of your remaining life specify the amount you plan to save/invest/withdraw that year and how much you expect that amount to increase during the year (base on actual data – typical savings interest rate, typical stock market interest rate, typical CDs, typical…). Calculate how much your funds will increase/decrease over your life and create a life (x-axis) vs funds (y-axis) plot.
1.Why the limitations that have caused some companiesto reduce their use of portfilio analysis is "Naively following the prescriptions of a portfolio model may actually reduce corporate profitsif they are used inappropriately"?
I need help with everything, please. hint: you will need to define one variable for total funds needed; one variable for each for 2 securities. and five variables for investment in savings at the beginning of each year. The 6th year will be 1.04 times the 5th-year saving variable. Formulate the problem and submit the formulation - no need to solve 1. As part of the settlement for a class action lawsuit, Hoxworth Corporation must provide sufficient cash to make the following annual payments (in thousands of dollars): Year Payment 1 190 2 215 3 240 4 285 5 315 6 460 The annual payments must be made at the beginning of each year. The judge will approve an amount that, along with earnings on its investment, will cover the annual payments. Investment of the funds will be limited to savings (at 4% annually) and government securities, at prices and rates currently quoted in The Wall Street…
You have recently won the super jackpot in the WashingtonState Lottery. On reading the fine print, you discover that you have the following twooptions:a. You will receive 31 annual payments of $250,000, with the first payment beingdelivered today. The income will be taxed at a rate of 28 percent. Taxes will bewithheld when the checks are issued.b. You will receive $530,000 now, and you will not have to pay taxes on this amount.In addition, beginning one year from today, you will receive $200,000 each yearfor 30 years. The cash flows from this annuity will be taxed at 28 percent.Using a discount rate of 7 percent, which option should you select?
What are some key differences between BCG and IE portfolio matrices? Please consider an industry in which you have worked, are working in, or would like to work in when addressing the questions.
The company's bank won't lend it any more money than it already has, and investment bankers have said that debentures are out of the question. The treasurer has asked you to do some research and suggest a few ways in which bonds might be made attractive enough to allow the company to borrow. Please provide a detail explanation for numbers 1-4. 1. Explain how to secure the bonds with owned assets in great detial. In what ways does it make the bonds more attractive to allow the company to borrow? 2. What is the agreement to subordinate future debt? How does it make the bonds more attractive? 3. What does providing a restrictive indenture limiting the risk in future undertakings do? How does it make the bonds more attractive? Explain in great detail. 4. How does providing a sinking fund for principal repayment make the bonds more attractive? Explain in detail.
3. As an owner of a restaurant known as Ryuichi House, you have decided to break down the salesof the club into four categories, the first category is beverages. Your estimate of beverages salesis that 30,000 drinks will be served. The selling price for each unit will average 60Php; cost is30Php. The second category is meals, which you expect to be 10,000 units with an average priceof 400Php and a cost of 200Php. The third category is desserts, of which you also expect to sell10,000 units but with an average price of 100Php per unit sold and cost of 40Php per unit. Thefinal category is snacks, which you expect to total 20,000 units at an average price of 250Php witha cost of 130Php. You will also expense 72,000Php for rent, 8,000Php for utilities, and 80,000Phpfor the entertainment.a. How much is the total sales?b. What is your break-even point in pesos per month?
Limitations of Portfolio analysis is Naively following the prescriptions of a portfolio model may actually reduce corporate profits if they are used inappropriately that have caused some companiesto reduce their use of this approach.Why?
Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 11 % and 14 %, respectively. The beta of A is 0.8 % while that of B is 1.5. The T-bill is currently 6 %, while the expected rate of return of the S&P 500 index is 12 %. The standard deviation of portfolio A is 10 % annually, while that of B is 31 % , and that of the index is 20 %: If you currently hold a market index portfolio, would you choose to add either of these portfolios to your holdings? Explain. If instead you could invest only in bills and one of these portfolios, which would you choose, and why? Investor Y, who put K1 in large stocks (the S & P 500 portfolio) on December 31, 1925, and re-invested all dividends in that portfolio, would have ended on December 31, 2003, with K1992.80.
J&J has given you $12 million to spend on advertising Huggys diapers during the next 12 months. Atthe beginning of January, Huggys has a 30% market7.9 Conclusion 401share. During any month, 10% of the people whopurchase Huggys defect to brand X, and a fraction0.2a1y2 of customers who usually buy brand X switchto Huggys, where a is the amount spent on advertisingin millions of dollars. For example, if you spend $4million during a month, 40% of brand X’s customersswitch to Huggys. Your goal is to maximize J&J’saverage market share during the next 12 months,where the average is computed from each month’sending share. Determine an appropriate advertisingpolicy. (Hint: Make sure you enter a nonzero trialvalue for each month’s advertising expense or Solvermight give you an error message.)

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