You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund
Q: Consider the following hypothetical investment for the fund. Issue a one-month liability and…
A: Calculate the coupon amount (PMT) of the bond by multiplying the face value of the bond which is…
Q: Clifford Clark is a recent retiree who is interested in investing some ofhis savings in corporate…
A: Hi, since there are multiple questions posted, we will answer first three question. If you want any…
Q: You are a risk analyst in a public pension fund. You have been asked to calculate the appropriate…
A: Hedging: It is a strategy to decrease the risk related to an investment.
Q: The Equity Fund sells Class A shares with a front-end load of 4% and Class B shares with 12b-1 fees…
A: Net investment after 4% commission in Class A shares is 9,600. If the fund earns a 10% return, the…
Q: The ARA Corporation bonds have a coupon of 14%, pay interest semi-annually, and they will mature in…
A: Bond price is present value of coupon payment and maturity payment received during life of bond
Q: MSS Ltd has recently issued bond to attract new funding. The bond issue has 30 years to maturity and…
A: A bond is an instrument that represents the loan that is made by the investor to the company and…
Q: What is a “balanced portfolio” ? What kind of account allows people to invest small amounts of money…
A: Answer: “Hey, since there are multiple questions posted, we will answer first question. If you want…
Q: Bramble Corporation, having recently issued a $20,094,900, 15-year bond issue, is committed to make…
A: The question is based on the concept Annuity
Q: Suppose that a portfolio management company manages an investment fund. The fund manager observes a…
A: In this we have to find the price of bond at two levels.
Q: You invest in a three year bond with a face value of $100, a yield of 4% pa and a fixed coupon rate…
A: In Bond Investor received a Fixed Income. Bond yield is the amount of return an investor realizes on…
Q: Oriole Real Estate Company management is planning to fund a development project by issuing 10-year…
A: Bond are the liability of the company which is used to finance the requirement of the funds. The…
Q: Jimmy has a bond with a $1,000 face value and a coupon rate of 8.5% paid semiannually. It has a…
A: GIVEN, par = $1000 coupon rate = 8.5% m =2 ( semi annual) n = 5 r = 12%
Q: You are considering investing in a security that matures in 10 years with a par value of $1,000.…
A: Please find the answer to the above question below:
Q: A pension fund manager is holding a 10-year 10% coupon bond in the fund's portfolio, and the…
A: Here, Time Period of Bond of 10 years Coupon Rate of Bond is 10% YTM of Bond is 10% Revised YTM…
Q: Your friend recommends that you invest in a three-year bond issued by Toyota, Inc., that will pay…
A: Given Information : Coupon rate = 10% Yield = 6% Face value (assume) = 1000
Q: pension funds pay lifetime annuities to recipients. if a firm will remain in business indefinitely,…
A: Formula to calculate the present value of the firm's perpetual obligation is: Perpetual…
Q: You are given the following information concerning a noncallable, sinking fund debenture:…
A: Since you have posted a question with multiple sub-parts, we will solve first three subparts for…
Q: An engineer planning for retirement is considering purchasing a bond that has a face value of…
A: A bond is a debt instrument used to raise capital. It can be traded on the secondary market.
Q: If interest rate changes in the spot market exactly match those in the futures market, what type of…
A: a.) The mutual fund needs to enter into a contract to buy Treasury bonds at 98-24 in four months.…
Q: Jimmy has a bond with a $1,000 face value and a coupon rate of 9.5% paid semiannually. It has a…
A: Present Value is defined as the current value of the future stream of the funds or the cash flows,…
Q: The Investments Fund sells Class A shares with a front-end load of 6% and Class B shares with 12b-1…
A: a) For every $10000 of investment, return in Class A shares, return after 4 years would be as…
Q: You bought a 10-year, 5% coupon bond for $1,000 and sold it 1 year later for $1,100. The bond pays…
A: For calculating after tax rate of return we will need after tax coupon and after tax capital gain.
Q: The Investments Fund sells Class A shares with a front-end load of 4.5% and Class B shares with…
A: The real rate of return: A real rate of return is what is earned on an investment after accounting…
Q: The Investments Fund sells Class A shares with a front-end load of 4.5% and Class B shares with…
A: a-1) Selling after four years: Net Value of investment fund(Class A) =…
Q: You are managing a portfolio of £20 million. Your target duration is 6 years, and you can choose…
A: The portfolio is referred to as the basket of different financial assets in which investment is made…
Q: Coupon rate 7% Principal Term to maturity $1,000 20 years
A: a. given, par=$1000 coupon rate = 7% coupon = par x coupon rate = 0.07 x 1000 = $70 purchase bond at…
Q: bond mutual fund has annual coupon bonds with a yield to maturity of 8%. If the duration of your…
A: Modified duration It is used to measure the sensitivity of the price of bonds due to change in…
Q: If you plan to sell the fund after four years, are Class A or Class B shares the better choice for…
A: Assume investment amount=100 Net amount investment = gross amount*(1-front-end load) = 100*(1-0.06)…
Q: You are asked to invest $30 million in a bond portfolio consisting of only two bonds. Bond A has a…
A: Concept. Bond duration is way of measuring how much bond prices are likely to change if there is…
Q: An engineer planning for retirement is considering purchasing a savings bond with a face value of…
A: An investor purchases an asset if the current value of asset is more than the purchase price.…
Q: Clifford Clark is a recent retiree who is interested in investing some of his savings in corporate…
A: Clifford Clark is a recent retiree Who is interested in investing some Of his savings in corporate…
Q: A home appliance manufacturing company plans to invest what it considers "temporary excess fund" in…
A: Bonds: Bonds are the liabilities of the company which is issued to raise the funds required to…
Q: An insurance company must make payments to a customer of £10 million in one year and £4 million in…
A: Bonds are the long-term financing measures to create debt. Interest (coupon) is paid periodically on…
Q: Cardinal Mania is financing a new investment project by issuing five-year bonds. Each bond has the…
A: a. Calculate the yield to maturity as follows: Yield to maturity is 5.55%.
Q: The Bissette LLC Fund is looking to buy bonds with a $1,000 face value, an 8% coupon, payable…
A: Yield to Maturity = [coupon amount +( Par value - Price)/n]/[( Par value + Price)/2] Coupon amount =…
Q: You have just purchased 10 municipal bonds, each with a $1,000 par value, for $9,500. You purchased…
A: Investor sells the bond after 5 years. Hence, the investor will receive the coupon payment for those…
Q: A pension fund currently has $50 million in the S&P 500 index and $50 million in Treasury bills…
A: Solution: (a). In order to eliminate market risk from the portfolio and hedge it completely, the…
Q: Assume that Jack Tan wishes to purchase a bond with a 10-year maturity, an annual coupon rate of…
A: A financial instrument that doesn’t affect the ownership of the common shareholders or management of…
Q: Suppose your company needs to raise $10 million and you want to issue 30-year bonds for this…
A: “Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…
Q: You are a risk analyst in a public pension fund. You have been asked to calculate the appropriate…
A: Introduction: Bond: The issuing bank owes the lenders a bond, which is a type of debt. Municipal…
Q: Suppose that a portfolio management company manages an investment fund. The fund manager observes a…
A: The correct option is A.) 1.723 TL Loss
Q: The present worth of a $10,000 municipal bond due 6 years from now is $11,000. If the bond interest…
A: The formula for calculating the present value is given below P=F1+in here F is the future…
Q: Pension funds pay lifetime annuities to recipients. If a firm will remain in business indefinitely,…
A: Perpetual payments of $2million per year. Yield to maturity is 16% For part a Coupon rate is…
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
- Pension funds pay lifetime annuities to recipients. If a firm will remain in business indefinitely, the pension obligation will resemble a perpetuity. Suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $2 million per year to beneficiaries. The yield to maturity on all bonds is 16%.a. If the duration of 5-year maturity bonds with coupon rates of 12% (paid annually) is four years and the duration of 20-year maturity bonds with coupon rates of 6% (paid annually) is 11 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation?b. What will be the par value of your holdings in the 20-year coupon bond?pension funds pay lifetime annuities to recipients. if a firm will remain in business indefinitely, the pension obligation will resemble a perpetuity. suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $2 million per year to beneficiaries. the yield to maturity on all bonds is 15%. a. if the duration of 5-year maturity bonds with coupon rates of 11% (paid annually) is 4 years and the duration of 20-year maturity bonds with coupon rates of 7% (paid annually) is 11 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation?A pension fund faces a promised outflow of $5 million in 6 years. Its managers plan to dedicate a portfolio comprised of the following two bonds to meet this obligation. a. What must be the proportions ((W7, W6) or (Weight(A), Weight(B)) of the two bonds in this 2-security portfolio to immunize it against changes in interest rates? b. What is the yield to maturity for the immunized portfolio? c. How much needs to be invested in each bond to build an immunized portfolio with an expected value of $5 million in 6 years? d. Suppose that it is now 3 years later and that there has been a parallel increase in interest rates of 2%. Explain how immunization at least partially protects this portfolio. That is, what are the sources of losses and gains associated with each of the bonds caused by the increase in interest rates? How do they offset each other?
- You are managing a pension plan that is due to pay $11 million a year for 15 years with the first payment one year from today and $8 million a year for 10 years with the first payment 5 years from today. You can use a zero coupon bond with 4 years to maturity and a 20 year coupon bond with a duration of 12.31 years to immunize your portfolio. The interest rate is 7 percent for all maturities. How many zero coupon bonds will you have to purchase? Assume annual cash flows and compounding in your calculations.Suppose that a pension fund manager anticipates the purchase of a 20-year 8 percent coupon T-bond at the end of two years. Interest rates are assumed to change only once every year at year end. At that time, it is equally probable that interest rates will increase or decrease 1 percent. When purchased in two years, the T-bond will pay interest semiannually. Currently, it is selling at par a. What is the pension fund manager’s interest rate risk exposure? b. How can the pension fund manager use options to hedge that interest rate risk exposure?Your friend recommends that you invest in a three-year bond issued by Toyota, Inc., that will pay annual coupons of 10 percent. Similar investments today will yield 6 percent. How much should you pay for the bond?
- As corporate treasurer, you have to pay $21 million in one year and again in two years. Bonds of all maturities currently yield 7%. If you buy zero-coupon bonds with a maturity equal to the duration calculated in the previous part, what should be their combined face value (in $)?A mutual fund plans to purchase $500,000 of 30-year Treasury bonds in four months. These bonds have a duration of 12 years and are priced at 96-08 (32nds). The mutual fund is concerned about interest rates changing over the next four months and is considering a hedge with T-bond futures contracts that mature in six months. The T-bond futures contracts are selling for 98-24 (32nds) and have a duration of 8.5 years. If interest rate changes in the spot market exactly match those in the futures market, what type of futures position should the mutual fund create? How many contracts should be used? If the implied rate on the deliverable bond in the futures market moves 12 percent more than the change in the discounted spot rate, how many futures contracts should be used to hedge the portfolio? What causes futures contracts to have a different price sensitivity than the assets in the spot markets?The Bissette LLC Fund is looking to buy bonds with a $1,000 face value, an 8% coupon, payable semiannually, and a maturity of 5 years. Currently, the bond sells at $880.00. What is the yield to maturity?
- You are given the following information concerning a noncallable, sinking fund debenture: Principal: $1,000 Coupon rate of interest: 7 percent Term to maturity: 12 years Sinking fund: 3 percent of outstanding bonds retired annually; the balance at maturity If you buy the bond today at its face amount and interest rates rise to 12 percent after five years have passed, what is your capital gain or loss? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Use a minus sign to enter the loss amount, if any, as a negative value. Round your answer to the nearest dollar. $ If you hold the bond 12 years, what do you receive at maturity? -Principal or All coupon payments? What is the bond's current yield as of right now? Round your answer to the nearest whole number. % Given your price in a, what is the yield at maturity? Round your answer to the nearest whole number. % What proportion of the total debt issue is retired by the…As a bond fund manager, you are considering 10-year corporate bonds issued by Mellon Bank (MB). Each MB bond has a $1,000 par value with 8% annual coupon rate. The coupons are paid semi-annually. The estimated rate of return on MB bond is 10%. One year later, the yield increases to 11%. What is your holding period return of the bond? A. 8.20% B. 4.11% C. -6.79% D. -3.35%A portfolio for a pension fund that you manage has payments resembling a perpetuity. You want to immunize the pension fund liability by purchasing 2 bonds: a zero coupon bond maturing in 6 years & a 10% coupon bond with a duration of 25 years. Assume the yield on both bonds & the pension fund is 7%. What percent of your portfolio should you invest in the zero-coupon bonds?