Bond investors often like to buy shares in mutual funds that give returns that closely follow commonly quoted indices, such as the Lehman Brothers Government Index. One popular index is computed from several thousand different bond types. Roughly how many bonds do you think would be needed in a portfolio that could reliably give one year portfolio returns within half a percentage point of the index? You can assume bond returns typically vary in range from -5% to +5% with a standard deviation of about 2.5% but state any other assumptions you made for this.

Bond investors often like to buy shares in mutual funds that give returns that closely follow commonly quoted indices, such as the Lehman Brothers Government Index. One popular index is computed from several thousand different bond types. Roughly how many bonds do you think would be needed in a portfolio that could reliably give one year portfolio returns within half a percentage point of the index? You can assume bond returns typically vary in range from -5% to +5% with a standard deviation of about 2.5% but state any other assumptions you made for this.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 5MC

See similar textbooks

Similar questions

Please help me fast sir please
Bond valuation related problems should be solved by using a financial calculator or MS excel spreadsheet. Accordingly, you must show the values of all relevant time valu of money variables If D1 = $1.50 g (which is constant) = 6.5%, Po = $56, what is the stock's expected capital gains yield for the coming year?
Required:(i) Calculate the bond durations for Bond A and Bond B respectively using a table format.Show the formulas and workings in each column. (ii) Determine the investment decision based on the market expectation and your answer in part (i) above.
A risk analyst seeks to ﬁnd out the credit-linked yield spread on a BB-rated one-year coupon bond issued by a multinational mining company. If the prevailing annual risk-free rate is 3%, the default rate for BB-rated bonds is 8%, and the loss given default is 60%. You are required to calculate the yield to maturity of the bond.
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: . a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating? b. What is the credit spread on AAA-rated corporate bonds? c. What is the credit spread on B-rated corporate bonds? d. How does the credit spread change with the bond rating? Why? Data table e bond with a AAA rating? (Click on the following icon a in order to copy its contents into a spreadsheet.) Important: The yields displayed are annually compounded yields. Security Yield (%) 3.14 Treasury AAA corporate ВBB сoгрorate В согрoгate 3.23 4.28 4.89 Print Done
The current zero-coupon yield curve for risk-free bonds is as follows: coupon, risk-free bond? . What is the price per $100 face value of a two-year, zero- The price per $100 face value of the two-year, zero-coupon, risk-free bond is $ (Round to the nearest cent.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) 1 2 3 YTM 4.95% 5.49% 5.76% 4 5.97% 5 6.09% Print Done -
Bond valuation related problems should be solved by using a financial calculator or MS excel spreadsheet. Accordingly, you must show the values of all relevant time valu of money variables If D1 = $1.25, g(which is constant) = 4.7%, and Po= $26.00 what is the stocks expected dividend yield for the coming year?
不 The following table summarizes the yields to maturity on several one-year, zero-coupon securities: a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating? b. What is the credit spread on AAA-rated corporate bonds? c. What is the credit spread on B-rated corporate bonds? d. How does the credit spread change with the bond rating? Why? a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating? The price of this bond will be ☐ %. (Round to three decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Important: The yields displayed are annually compounded yields. Security Treasury Yield (%) 3.09 AAA corporate 3.21 BBB corporate 4.24 B corporate 4.93 Print Done - X
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating? b. What is the credit spread on AAA-rated corporate bonds? c. What is the credit spread on B-rated corporate bonds? d. How does the credit spread change with the bond rating? Why?
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating? b. What is the credit spread on AAA-rated corporate bonds? c. What is the credit spread on B-rated corporate bonds? d. How does the credit spread change with the bond rating? Why? a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating? The price of this bond will be 3.17 %. (Round to three decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Important: The yields displayed are annually compounded yields. Security Yield (%) Treasury 3.11 AAA corporate 3.18 BBB corporate 4.20 B corporate 4.87 -
Please show work without a calculator or excel. In other words the actual equation.
The current zero-coupon yield curve for risk-free bonds is as follows: What is the price per $100 face value of a two-year, zero-coupon, risk-free bond? The price per $100 face value of the two-year, zero-coupon, risk-free bond is $ (Round to the nearest cent.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) YTM 1 5.00% 2 5.50% 3 5.75% 4 5.95% 5 6.05% -