3.Alex has a portfolio consisting of the below:A borrowing of €100 at the risk-free rate,a long position in a six-month put option on stock AA with an exercise priceof €200 (1.e., EX = €200), anda short position in a six-month put option on stock AA with an exercise priceof €100 (i.e., EX = €100).a.Provide two other combinations of loans, options, and the underlying stock thatwould give Alex the same payoffs.b. Today is 16 December 2021. A pension fund has a $50 million obligation dueexactly 7 years from now and pays 3% interest (compounded annually) on thisobligation. Assume that the term structure is flat.How many AAPL and MSFT bonds should the pension fund buy to form a portfoliothat will ensure that the pension fund will meet its obligation in 7 years' time?AAPL bond has a modified duration of 19.85 and MSFT bond has a modifiedduration of 3.65.Use the information provided in the table below. Note that the quoted price is theclean price.MSFTAAPLPrice ($)Yield (%)Par value ($)Modified duration (%)Last coupon dateCoupon frequencyDay count principleMaturity967.60631,00019.8508 Aug 2021annually30/36008 Aug 20501065.59731,0003.6503 May 2021annually30/36003 May 2025

“Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only…

Alex has a portfolio consisting of the below: A borrowing of €100 at the risk-free rate, a long position in a six-month put option on stock AA with an exercise price of €200 (1.e., EX = €200), and . a short position in a six-month put option on stock AA with an exercise price of €100 (i.e., EX = €100). Provide two other combinations of loans, options, and the underlying stock that would give Alex the same payoffs.

Alex has a portfolio consisting of the below: A borrowing of €100 at the risk-free rate, a long position in a six-month put option on stock AA with an exercise price of €200 (1.e., EX = €200), and . a short position in a six-month put option on stock AA with an exercise price of €100 (i.e., EX = €100). Provide two other combinations of loans, options, and the underlying stock that would give Alex the same payoffs.

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

See similar textbooks

Similar questions

A portfolio consists of two securities and the expected return on them is 11% and 15% respectively. What is the return on this portfolio if the first security constitutes of 45% of the total portfolio?
Assume that you wish to purchase a bond with a 17-year maturity, an annual coupon rate of 11.5%, a face value of $1,000, and semiannual interest payments. If you require a 9.5% return on this investment, what is the maximum price you should be willing to pay for the bond?
These 2 questions are from my end of the chapter questions. Could someone please help me?
what is the terminology for the lowest price listed on a stock market exchange at which an investor is willing sell a specific stock? A- market price B- buyer price C- Ask price D- bid price
Suppose you have portfolio of four stocks Stock A, B, C and D, Total investment in these stocks is equal to 2019331015 $, Beta of these stocks is 1.5, (0.5), 1.25, and 0.75 and proportion invested is 22%, 20%, 30%, and remaining in D. If the Risk free rate is 6% and market rate of return is 15%. Calculate a) Investment in each stock. b) Market premium c) Required Rate of return for each stock. d) Required rate of return of Portfolio. e) If expected rate of return of stock A is 10%, what do you think if it is overvalued or undervalued.
Portfolio A consists of a 1-year zero-coupon bond with a face value of $1,000 and a 10-year zero coupon bond with a face value of $1,000. Portfolio B consists of a single zero coupon bond with a face value of $2,000 and 3.6 years remaining to maturity. The current yield on all bonds is 10% per annum. Show that both portfolios have the same duration (start with B then do A). Show that the percentage changes in the values of the two portfolios for a 0.1% per annum drop in yields are virtually the same.
2) As an investor, you are considering an investment in the bonds of the Soccer Company. The bonds, which pay interest semiannually, will mature in ten years, and have a coupon rate of 6.5% on a face value of $1,000. a) Assume your required return is 8% (market rate) for the bonds in this risk class, what is the highest price you would be willing to pay for the bond? (Use the PV function) b) What is the current yield of these bonds? c) If you bought the bond at the above calculated price and hold the bonds for one year, what total rate of return will you earn (assuming the market rate does not change)? Hint: You need to calculate the bond price one year ahead (note: in one year 9 years are left to maturity) and then compute the total return based on the capital gains/loss yield (in %) and the current yield (in %) from b). d) What is the yield to maturity on these bonds if you purchase them at the price calculated under a)? (Use the RATE function) e) If the bonds can be called in three…
Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, A-rated corporate bond. The current real risk-free rate is 3%, and inflation is expected to be 2% for the next 2 years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.02(t - 1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.3%. You may determine the default risk premium (DRP), given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP. Corporate Bond Yield Rate Spread = DRP + LP U.S. Treasury 0.83 % — AAA corporate 1.03 0.20 % AA corporate 1.39 0.56 A corporate 1.79 0.96 What yield would you predict for each of these two investments? Round your answers to three decimal places. 12-year Treasury yield: fill in the blank _ % 7-year Corporate yield: fill…
Consider the following portfolio. You write a put option with exercise price $90 and buy a put with the same expiration date with exercise price $95. a. Plot the value of the portfolio at the expiration date of the options. b. Now, plot the profit of the portfolio. Which option must cost more?
A portrollo consists of assets with the following expected returns: Technology stocks Pharmaceutical stocks Utility stocks Savings account a. What is the expected return on the portfolio if the investor spends an equal amount on each asset? Round your answer to two decimal places. % 26% 16 9 4 b. What is the expected return on the portfolio if the investor puts 53 percent of available funds in technology stocks, 15 percent in pharmaceutical stocks, 14 percent in utility stocks, and 18 percent in the savings account? Round your answer to two decimal places. %
Discuss the overarching idea of Asset Liability Management and its key objectives. How does the process of Gap Analysis support Asset Liability Management?
Determine the annualised return, including all its components, from the following bond transaction: a. on 27 April 2023 you purchase $12.35m face value bond maturing on 11 May 2030 which has a 2.70% coupon that is trading at a yield of 3.025% b. You sell this bond on 16 May 2023 at a yield of 3.195% (Please show all every steps in detail including formula used)

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS