Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 12, Problem 24PS
You have
a. A
b. A two-year CD at a bank offering an interest rate of
c. A
What role does you
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You have $5,000 to invest for the next year and are considering three alternatives:a. A money market fund with an average maturity of 30 days offering a current yield of 6% per year.b. A 1-year savings deposit at a bank offering an interest rate of 7.5%.c. A 20-year U.S. Treasury bond offering a yield to maturity of 9% per year.What role does your forecast of future interest rates play in your decisions?
You have $5000 to invest for the next year and are considering three alternatives:
a money market fund with an average maturity of 30 days offering a current yield of 6% per year.
a 1-year savings deposit at a bank offering an interest rate of 7.5%
a 20-year U.S. Treasury bond offering a yield to maturity of 9% per year
What role does your forecast of future interest rates play in your decisions?
You are considering the choice between investing £50,000 in a conventional 1-year financial asset such as (Certificate of Deposit) offering an interest rate of 5% and a 1-year “InflationPlus” offering 1.5% per year plus the rate of inflation.
(a) Which is the safer investment and why? Which offers the higher expected return and why? If you expect the rate of inflation to be 3% over the next year, which is the better investment? Explain. If we observe a risk-free real rate of 5% per year and a risk-free real rate of 1.5% on inflation indexed bonds, can we infer that the market’s expected rate of inflation is 3.5% per year?
Chapter 12 Solutions
Essentials Of Investments
Ch. 12 - Prob. 1PSCh. 12 - Why does it make intuitive sense that the slope of...Ch. 12 - Which one of the following firms would be...Ch. 12 - Prob. 4PSCh. 12 - How do each of the following affect the...Ch. 12 - The present value of a firm’s projected cash flows...Ch. 12 - Prob. 7PSCh. 12 - Which of the following is consistent with a...Ch. 12 - Which of the following is not a governmental...Ch. 12 - Prob. 10PS
Ch. 12 - Prob. 11PSCh. 12 - ATech has fixed costs of 7 million and profits of...Ch. 12 - Choose an industry and identify the factors that...Ch. 12 - What monetary and fiscal policies might be...Ch. 12 - If you believe the U.S. dollar is about to...Ch. 12 - Unlike other investors, you believe the Fed is...Ch. 12 - Consider two firms producing smartphones. One uses...Ch. 12 - Prob. 18PSCh. 12 - Prob. 19PSCh. 12 - Prob. 20PSCh. 12 - In which stage of the industry life cycle would...Ch. 12 - Prob. 22PSCh. 12 - Why do you think the change in the index of labor...Ch. 12 - You have 5,000 to invest for the next year and are...Ch. 12 - General Weedkillers dominates the chemical weed...Ch. 12 - Prob. 26PSCh. 12 - Prob. 27PSCh. 12 - Prob. 28PSCh. 12 - Prob. 29PSCh. 12 - Prob. 30PSCh. 12 - Prob. 31PSCh. 12 - Prob. 32PSCh. 12 - Prob. 33CCh. 12 - Prob. 1CPCh. 12 - Prob. 2CPCh. 12 - Prob. 3CPCh. 12 - Prob. 4CPCh. 12 - Prob. 5CPCh. 12 - Prob. 1WM
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- You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are essentially going to resemble level perpetuities of $2.24 million per year. The yield to maturity on all bonds is 14%. (a). Assume the duration of six-year maturity bonds with coupon rates of 10% (paid annually) is 5 years, and the duration of 22-year maturity bonds with coupon rates of 7% (paid annually) is 11 years. Calculate how much of each of these two coupon bonds (in market value) you will want to hold in order to both fully fund and immunize your obligation. (b). Calculate the total par value of your holdings in the six-year maturity coupon bond. Please show workingarrow_forwardAn insurance company must make payments to a customer of $20 million in 1 year and $8 million in 5 years. The yield curve is flat at 10%. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase? (in years, use four decimal places) What must be the face value and market value of that zero-coupon bond? (in millions, use two decimal places)arrow_forwardYOUR BANK is thinking to issue a regular coupon bond (debenture) with the following particulars: Maturity = 3 years, Coupon rate = 9%, Face value = $1,500, Coupon payments are annual and paid at the end of a year. In the fixed-income securities market, the yield curve for the bond similar to the one issued by YOUR BANK is flat and it is 7.500% per annum continuously compounded. As per you, what should be the issue (offer) price per bond of YOUR BANK in US dollars?arrow_forward
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