as a financial manager, you are faced with the following options: (a) purchase a certificate of deposits that mature in 10 years and pays an interest upon maturity at the rate of 10% per annum compounded quarterly (b) purchase a zero-coupon bond that will triple your investment in the same period which option will help you to optimize your investment?

as a financial manager, you are faced with the following options: (a) purchase a certificate of deposits that mature in 10 years and pays an interest upon maturity at the rate of 10% per annum compounded quarterly (b) purchase a zero-coupon bond that will triple your investment in the same period which option will help you to optimize your investment?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter4: Exchange Rate Determination

Section: Chapter Questions

Problem 6BIC

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2.3 You have been provided with the following options. a. A 10-year, R1000 face value, 10 percent coupon bond with semiannual interest payments. b. A 10-year, R1000 face value, 10 percent coupon bond with annual interest payments. c. A 10-year, R1000 face value, zero coupon bond. d. A 10-year R100 annuity. Determine which one poses the highest price risk. 2.4 Which of these five statement is the most correct: a. Other things held constant, a callable bond would have a lower required rate of return than a noncallable bond. b. Other things held constant, a corporation would rather issue noncallable bonds than callable bonds. c. Reinvestment rate risk is worse from a typical investor's standpoint than interest rate risk. d. If a 10-year, R1 000 par, zero coupon bond were issued at a price which gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, we could be sure that the bond would sell at a premium over its R1 000 par value. e.…
A short question 4) You are managing a portfolio of $1 million. Your target duration is 10 years, and you can choose from two bonds: a zero-coupon bond with maturity of 5 years, and a perpetuity*, each currently yielding 5%. a. How much of each bond will you hold in your portfolio? b. How will these ratios change next year if target duration is now 9 years? *: Perpetuity: a specal case of annuity, where n-> Inf, thus the maturity of the instrument is perpetual.
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You have been provided with the following options. a. A 10-year, R1000 face value, 10 percent coupon bond with semiannual interest payments. b. A 10-year, R1000 face value, 10 percent coupon bond with annual interest payments. C.A 10-year, R1000 face value, zero coupon bond. d. A 10-year R100 annuity. ) Determine which one poses the highest price risk
Please answer required a,b
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