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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Assume you can buy a bond that has a par value of $1000, matures in 10 years, yielding 6% and has a duration of 5. If you would like to use this bond to form a guaranteed investment contract “GIC” and offer a guaranteed rate of return to investors for certain years. a. what is the maximum yield you can offer? Why? Explain. b. For how many years would you make the guarantee? Explain.
You are a provider of portfolio insurance and are establishing a four-year program. The portfolio you manage is currently worth $70 million, and you promise to provide a minimum return of 0%. The equity portfolio has a standard deviation of 25% per year, and T-bills pay 6.2% per year. Assume that the portfolio pays no dividends. Required: a-1. How much of the portfolio should be sold and placed in bills? (Input the value as a positive value. Do not round intermediate calculations and round your final percentage answer to 2 decimal places.) a-2. How much of the portfolio should be sold and placed in equity? (Input the value as a positive value. Do not round intermediate calculations and round your final percentage answer to 2 decimal places.) b-1. Calculate the put delta and the amount held in bills if the stock portfolio falls by 3% on the first day of trading, before the hedge is in place? (Input the value as a positive value. Do not round intermediate calculations. Round your…
An investor buys a $10,000 par, 5% coupon (semiannual payments) TIPS security with two years to maturity. If inflation every six months over the two years is 1.2 percent, what is the final payment (principal and interest) the TIPS Investor will receive? Input your final answer using two decimal places. Do not round intermediate calculations.
There are two options of investments given to an investor. Option A is a bond with face value of P100,000, 6% interest rate while the yield to maturity rate is 8%. Option B is a bond with a face value of P80,000, 14% (rounded up) interest rate while the effective rate of return is at 10%. Both investments is for 5 years and the interest income are being received annually. Which of the two investments should you choose? A. Option A B. Option B C. Either of the options D. answer not given
How much would you pay for a zero coupon bond with a par value of $1000, a maturity of 21 years, if your required rate of return is 6.1%? Assume annual discounting. (Round your answer to the nearest penny.)
You are considering investing in a zero coupon bond that will pay you its face value of$1000 in ten years. If the bond is currently selling for $485.20, whag is the IRR for investing in this bond?
Consider a forward contract which allows you to buy/sell a non-dividend paying stock in three months. Assume the current stock price is $99.41 and the three-month risk free interest is 5.4 percent per year. What should be the forward price? Keep your answer to two decimal places.
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
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.
What is the Macaulay duration of a bond with a coupon of 8.6 percent, twelve years to maturity, and a current price of $1,043.70? What is the modified duration? (Do not round intermediate calculations. Round your answers to 3 decimal places.) Macaulay Modified Duration Years Years
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.

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