You are managing a portfolio of $1 million. Your target duration is 10 years, and you can invest intwo bonds, a zero-coupon bond with maturity of five years and a perpetuity, each currentlyyielding 4.2% per year.What weight must you hold in the zero coupon bond to immunize your portfolio? Answer inpercentage. Round your answers to two decimal places. Do not include the percentage sign (%).

e managing a portfolio of $1 million. Your target duration is 10 years, and you can in onds, a zero-coupon bond with maturity of five years and a perpetuity, each current ng 4.2% per year. weight must you hold in the zero coupon bond to immunize your portfolio? Answer ntage. Round your answers to two decimal places. Do not include the percentage sig

e managing a portfolio of $1 million. Your target duration is 10 years, and you can in onds, a zero-coupon bond with maturity of five years and a perpetuity, each current ng 4.2% per year. weight must you hold in the zero coupon bond to immunize your portfolio? Answer ntage. Round your answers to two decimal places. Do not include the percentage sig

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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Answer with Excel functions and steps
You are considering the purchase of a Coupon Bond with a Face Value of $1,000, which matures in sixteen years, and pays 4.65% (annual) coupons. If the bond is trading in the market at $886.90, what is the Yield-to- Maturity (YTM) on the investment? (The answer is a percent, round your answer to two decimal places, e.g. 4.75) Numeric Response
solution
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
You are considering the purchase of a Zero Coupon Bond with a Face Value of $100,000, which matures in six years. In the markets this bond is selling for $81,097.58. If you purchase the bond at this price what is the Yield-to-Maturity (YTM) on the investment? (The answer is a percent, round your answer to two decimal places, e.g. 4.75) Numeric Response
You buy a 20-year bond with a coupon rate of 9.6% that has a yield to maturity of 10,5% (Assume a face value of $1,000 and semiannual coupon payments) Six months later, the yield to maturity is 11,5%. What is your return over the 6 months? Note: Do not round mediate calculations. Enter your answer as a percent rounded to 2 decimal places, Negative amount should be indicated by a minus sign.
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.
You buy a 20-year bond with a coupon rate of 9.2% that has a yield to maturity of 10.7%. (Assume a face value of $1,000 and semiannual coupon payments.) Six months later, the yield to maturity is 11.7%. What is your return over the 6 months? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Negative amount should be indicated by a minus sign.
Consider a long-term, zero coupon bond that has a face value of $100,000 and matures in thirteen years. If you require a return of 4.52%, what are you willing to pay for the instrument today? $56,286.96 $53,852.81 $95,675.47 $177,661.05
Suppose you just purchased a bond (Face Value = $1,000) with 16 years to maturity that pays an annual coupon of $24.00 and is selling at par. Calculate the one-year holding period return for each of these two cases: Required: a. The yield to maturity is 3.90% one year from now. (Do not round intermediate calculations. Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) HPR b. The yield to maturity is 1.70% one year from now. (Do not round intermediate calculations. Round your answer to 2 decimal places.) HPR %
What is the answer ?
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?

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