A manager is holding a bond portfolio worth $10 million with a modified duration of 5 years. She would like to hedgethe risk of the portfolio by short-selling Treasury bonds. The modified duration of T-bonds is 6 years. How manydollars' worth of T-bonds should she sell to minimize the variance of her position? (Enter your answer in dollars notmillions rounded to the nearest dollar value.)Answer is complete but not entirely correct.$Dollars' worth of T-bonds to be sold8 X

Duration of bond is the weighted period required to recover cash flow from the bond and it shows the…

A manager is holding a bond portfolio worth $10 million with a modified duration of 5 years. She would he risk of the portfolio by short-selling Treasury bonds. The modified duration of T-bonds is 6 years. He Hollars' worth of T-bonds should she sell to minimize the variance of her position? (Enter your answer millions rounded to the nearest dollar value.) Answer is complete but not entirely correct. $ Dollars' worth of T-bonds to be sold 8

A manager is holding a bond portfolio worth $10 million with a modified duration of 5 years. She would he risk of the portfolio by short-selling Treasury bonds. The modified duration of T-bonds is 6 years. He Hollars' worth of T-bonds should she sell to minimize the variance of her position? (Enter your answer millions rounded to the nearest dollar value.) Answer is complete but not entirely correct. $ Dollars' worth of T-bonds to be sold 8

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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c. The investments officer for Sillistine Savings is concerned about interest rate risk lowering the value of the institution's bonds. A check of the bond portfolio reveals an average duration of 4.5 years. How could this bond portfolio be altered in order to minimize interest rate risk within the next year?
You bought one of Great White Shark Repellant Company's 8 percent coupon bonds one year ago for $1,044. These bonds make annual payments and mature 13 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 6 percent. The bonds have a par value of $1,000. If the inflation rate was 3.4 percent over the past year, what was your total real return on investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Total real return %
You own a portfolio of risky, 10-year bonds with a contractual yield of 7%/year. You expect 4% of the bonds will default each year with a loss given default of 60%. What is the expected yield/year? (Your answer should be a % carried to 1 place.)
You manage a bond portfolio worth $400 million. You wish to hedge your portfolio against rise in interest rates by using T-bond futures that will mature in 9 months. The duration of your bond portfolio is 6 years, the duration of the T-bond is 7 years. The bond futures price is 98,000, (a) What action must you take and how many contracts? (b) Why do you need to use the duration of the bonds to get the answer
Baghiben
3. An investor enters into a forward contract to sell a bond in 3 months time at $100. After one month, the bond price is $99.06. Suppose the interest rate is 5% continuously compounded at all maturities. a) Assuming no coupons are due on the bond over the next two months, what is now the forward price of the bond? b) What is the marked-to-market value of the investor's short position?
S3 Q17 Ms. Elpram manages a bond portfolio valued at $105 million. The bonds in this portfolio have a face value of $100 million. The portfolio has a yield of 8.5% and a duration of 8.6. Ms. Elpram is worried that interest rates will rise within the next year. She would like to lower the duration of the bond portfolio to six years. She finds a one year bond futures contract and thinks that it would be an appropriate hedge for the portfolio. This futures contract is priced at 107 20/32, an implied yield of 8%, and an implied duration of 7.5 years. The futures contract size is $100,000. In the given case, since the value of bonds portfolio would fall pursuant to the rise in the interest rates, therefore Ms. Elpram should sell the future to hedge the overall portfolio. How many contracts should Ms. Elpram use?
An investor is considering purchasing a $1,000 bond with an 8% coupon rate. The bond was issued 7 years ago with a 30 year original maturity. If the investor requires a return of 7% based on the riskiness oft he bond, how much should she pay for the bond?
The Chief Financial Officer of a company would like to raise money for new equipment by floating a new bond issue. The CFO would like to receive $1000 (full face value) for each of the bonds she sells. After collecting the below bond market data, and if the bonds carry a rating of A and have a term of 10 years, what coupon rate should be included in the bond contract? Assume an annual coupon payment. Security& Rating Maturity Face Coupon Price Treasury 1 $ 1,000 0.00% $ 965.00 Treasury 3 $ 1,000 1.90% $ 939.06 Treasury 5 $ 1,000 4.30% $ 932.42 Treasury 10 $ 1,000 6.80% $ 1,007.12 Treasury 15 $ 1,000 6.60% $ 908.25 CorpA A 5 $ 1,000 8.10% $ 990.00 CorpB BB 10 $ 1,000 7.90% $ 859.88 CorpC AA 15 $ 1,000 7.00% $ 660.00
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?
Consider three securities that pay risk free cash flows over the next three years and that have the current market prices shown here Security Price Today (5) Cash Flow in Two Years (5) Cash Flow in Three Years ($) Name 81 82 83 $9268 $84.79 $386 09 Cash Flow in One Year ($) 100 0 0 0 100 0 0 0 500 Calculate the no-arbitrage price, or the price that eliminates any arbitrage opportuntes, of a new secunty 84, that plays risk toe cash flows of $100 in one year and $500 in two years The current no-arbitrage price of Security B4 is: s(round your answer to two decimal places) K

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