Problem 1Assume you are considering 6 coupon bonds whose investment characteristics are given in thetable below:BondCurrent Market PriceCoupon, %Term to Maturity, yearsA94.1257.827B99.8428.259с106.0419.1410D95.0746.864100.893F101.2218.619.1258Using the NPV approach define potential investment strategy in terms of buying/selling thesebonds. Compute these bonds' net present values, given the alternative rate of return 7.98%.Problem 2Using Problem 1 data, calculate yield to maturity of all bonds. Which bonds are quoted at apremium and which bonds are quoted at a discount?

Certainly! To determine the potential investment strategy using the Net Present Value (NPV)…

Answered: Problem 1 Assume you are considering 6…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 20P

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Problem 3 Assume an investor is holding a portfolio of six bonds investment characteristics of which are given in the table below: Bond A B C D EF Current Market Price 97.552 105.818 100.822 113.323 106.184 97.158 Coupon, % 6.34 7.28 6.46 6.02 6.44 7.25 Term to Maturity, years 5 7 8 6 5 8 Compute the portfolio yield to maturity using the internal rate of return approach. Problem 4 Using Problem 3 data, compute Macaulay duration and modified duration of each bond given the alternative rate of return being 7.00%. Problem 5 Using Problem 3 and Problem 4 data, compute convexity of these bonds. Problem 6 Assume you are constructing a portfolio of bonds described in Problem 3. Compute this portfolio duration and convexity.
Based on Table 3, what is the liquidity risk premium? Table 3 Investment 1 2 3 4 5 O 1.25% O 1.50% O 0.25% O 1.12% Maturity 2 2 7 8 8 Liquidity High Low Low High Low Default Risk Low Low Low Low High Interest Rate 1.00% 1.25% 2.25% 2.93% 4.43%
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Please solve ii
Question 3. A fixed rate bond with notional 1 pays annual coupons of c at times T1, T2, . . . , Tn where Ti+1 = Ti + 1 and notional 1 at time Tn. a) Write down the bond price BFXD c (t) at time t ≤ T0 in terms of ZCBs. b) Suppose t = T0 = 0. The yield of the bond is defined as the value Y such that B FXD c (0) = Xn i=1 c (1 + Y ) i + 1 (1 + Y ) n , that is, the rate at which IRR discounting gives the bond price. By summing a geometric series, show that BFXD c (0) = 1 if and only if Y = c. c) By writing a swap as the difference between a fixed rate bond and a floating rate bond, show that BFXD c (0) = 1 if and only if c = y0[0, Tn]. Remark 1. This exercise shows that the T-year spot swap rate is the bond coupon such that a T-maturity bond has price par, that is 100% of notional.
Use the investment opportunity set and data shown on the excel file attached. What will be the Weight of Bonds in the Optimum Portfolio, given this investment opportunity set? Round to two decimals. for example, 0.12
Risk and Rates of Return; Risk in Portfolio Context You are holding a investments and the portfilio with the following Stock A B C D Total Investament Dollar Investment $250,000 150,000 400,000 200,000 $1,000,000 Beta 1.20 1.60 0.85 -0.15 The market's required return is 11% and the risk-free rate is 4%. What is the portfolio's required return? Round your answer to three places. decimal
•A portfolio consisting of five securities could have its beta factor computed as follows: •If the risk-free rate of return is 12% and the average market return is 20%. Calculate the required return on the various securities and the portfolio
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What is the beta of a portfolio comprised of the following securities? Stock Amount Invested Security Beta A $5,100 1.66 B $6,100 1.77 C $8,600 1.00
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Consider a portfolio consisting of the below securities with the below characteristics: Security Amount Invested($) Beta Expected Return A 1,5 MIL 1.0 12.0%B 1.0 MIL 1.5 13.5%C 2.0 MIL 0.8 9.0% Required:a) Calculate the portfolio’s Beta. b) Calculate the portfolio’s expected return. c) Discuss the Capital Asset Pricing Model (CAPM) explaining what it is used forand which are its limitations.

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