Topic 2: Return measures2. Which of the following investments do you prefer?(a) Purchase a zero-coupon bond, which pays $1000 in ten years, for a price of $550.(b) Invest $550 for ten years in a bank savings account at a guaranteed annual interestrate of 5.5%.1
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Topic 2: Return measures
2. Which of the following investments do you prefer?
(a) Purchase a zero-coupon bond, which pays $1000 in ten years, for a price of $550.
(b) Invest $550 for ten years in a bank savings account at a guaranteed annual interest
rate of 5.5%.
1
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- The US Govemment wanted to auction $600 million worth of 1-year Treasury Bills. Bids for $100 million worth of Treasury Bills were submitted on a non-competitive basis. Institution Amount Bidded Price Bank 1 $100 m $50 m $150 m $50 m $100 m $100 m $175 m 98.0 Bank 2 97.5 Bank 3 97.0 96.5 Bank 4 Bank 5 96.0 Bank 6 95.5 Bank 7 95.0 (a) Based on the competitive bids submitted, describe, using a table, how you determine the price: (i) (11 The stopped-out price The allocations to banks 4, 5 and 6Assume you have the following asset and liability in your Balance Sheet: Asset - Bond A Modified Duration = 2.6 years Value = RM1.5 million Liability - Bond B Modified Duration = 3.1 years Value = RM1.0 million a. Calculate the duration gap. b. What is the expected change in Net Worth if interest increases by 1%? c. What should or could you to achieve immunised balance sheet? Note: Please show all workings.Give typing answer with explanation and conclusion
- What makes for a good investment? Use the approximate yield formula or a financial calculator to rank the following investments according to their expected returns. Buy a stock for $30 a share, hold it for three years, and then sell it for $60 a share (the stock pays annual dividends of $2 a share). Buy a security for $40, hold it for two years, and then sell it for $100 (current income on this security is zero). Buy a one-year, 5 percent note for $1,000 (assume that the note has a $1,000 par value and that it will be held to maturity).financial risk management . Assume you have the following asset and liability in your Balance Sheet:Asset - Bond AModified Duration = 2.6 yearsValue= RM1.5 millionLiability - Bond BModified Duration = 3.1 yearsValue= RM1.0 million What is the expected change in Net Worth if interest increases by 1% ?E2
- Please solve using Excel and show/explain the formulas.Give typing answer with explanation and conclusion 1. Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called? A. coupon B. face value C. discount D. yield E. dirty priceSuppose you purchase a 10-year bond with 5% annual coupons. You hold the bond for four years and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 3.49% when you purchased and sold the bond, a. What cash flows will you pay and receive from your investment in the bond per $100 face value? b. What is the internal rate of return of your investment? Note: Assume annual compounding. a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flow at time 1-3 is $ (Round to the nearest cent. Enter a cash outflow as a negative number.)
- 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.3 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?Which of the following investments do you prefer? (a) Purchase a bond with a single payment of $1000 in ten years, for a price of $550. (b) Invest $550 for ten years in PNC Bank at a guaranteed annual interest rate of 4.5%.