You are asked to invest $30 million in a bond portfolio consisting of only two bonds. Bond A has a yield of 6% and is a 5 year coupon bond a duration of 4.36 years, and bond B has a yield 7% and is a 7 year coupon bond duration of 6.50 years. The portfolio is to have an investment horizon of 5 years. How much of each bond issue would you have to buy to immunize the portfolio? A. Invest in 70 percent bond A and 30 percent bond B. B. Invest in 60 percent bond A and 40 percent bond B. C. Invest in 30 percent bond A and 70 percent bond B D. Invest in 40 percent bond A and 60 percent bond B

You are asked to invest $30 million in a bond portfolio consisting of only two bonds. Bond A has a yield of 6% and is a 5 year coupon bond a duration of 4.36 years, and bond B has a yield 7% and is a 7 year coupon bond duration of 6.50 years. The portfolio is to have an investment horizon of 5 years. How much of each bond issue would you have to buy to immunize the portfolio? A. Invest in 70 percent bond A and 30 percent bond B. B. Invest in 60 percent bond A and 40 percent bond B. C. Invest in 30 percent bond A and 70 percent bond B D. Invest in 40 percent bond A and 60 percent bond B

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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Suppose an investor owns a 30-year Apple bond that is non callable. The coupon is 4% and the price is 125. There is a similar Apple bond (30 year maturity and 4% coupon) that is callable in 5 years. That bond is priced at 105. What does that say about the value of the call. There is also a similar Apple bond that is puttable in 5 years. Describe a rough range for this bond price, with your rationale.
An investor is considering the purchase of a(n) 6.000%, 15-year corporate bond that's being priced to yield 8.000%. She thinks that in a year, this bond will be priced in the market to yield 7.000%. Using annual compounding, find the price of the bond today and in 1 year. Next, find the holding period return on this investment, assuming that the investor's expectations are borne out. The price of the bond today is $ (Round to the nearest cent.)
Assume that you are considering the purchase of a 5-year, noncallable bond with an annual coupon rate of 8.00%. The bond has a face value of $1000, and it makes semiannual interest payments. If you require an 11.55% yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond? Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
Assume you have a 1-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 8% coupon rate and pays the $80 coupon once per year. The third has a 10% coupon rate and pays the $100 coupon once per year.a. If all three bonds are now priced to yield 8% to maturity, what are the prices of: (i) the zero-coupon bond; (ii) the 8% coupon bond; (iii) the 10% coupon bond?b. If you expect their yields to maturity to be 8% at the beginning of next year, what will be the price of each bond?c. What is your before-tax holding-period return on each bond? d. If your tax bracket is 30% on ordinary income and 20% on capital gains income, what will be the after-tax rate of return on each bond?e. Recalculate your answers to parts (b)–(d) under the assumption that you expect the yields to maturity on each bond to be 7% at the…
An investment firm recommends that a client invest in bonds rated AAA, A, and B. The average yield on AAA bonds is 4%, on A bonds 5%, and on B bonds 8%. The client wants to invest twice as much in AAA bonds as in B bonds. How much should be invested in each ype of bond if the total investment is $9,000, and the investor wants an annual return of $470 on the three investments? The client should invest $ in AAA bonds, $in A bonds, and $[ in B bonds.
Bond A is a 4-year bond with a 10% coupon rate and Bond B is a 2-year bond with a 20% coupon rate. Both bonds have a face value of £100, and all coupons are paid annually, starting in year 1. Consider a portfolio that consists of one unit of Bond A and one unit of Bond B. The yield curve is flat at ? = 5%. What is the Macaulay duration of this portfolio?
Suppose you own a 3-year, 7% annual coupon bond with a maturity value of $1,000 with a yield to maturity of 10%. You want to find the duration-matched short position in a 3-year, 8% annual coupon bond with a maturity value of S1,000 and yielding 5%. How many units of the second bond do you need to short?
Nikul
An insurance company is thinking about purchasing bonds A and B with zero coupons to cover some of its future liabilities. The redemption periods for these zero-coupon bonds are seven and twenty years, respectively.£11 million is due in 11 years, and £14 million is due in 16 years, according to the list of its liabilities.Determine bond B's value at an effective 5% annual interest rate so that Redington's theory of immunization's first two requirements are met. (correct answer=6.419) (using formulas, no tables)
1) What are the factors affecting the discount rate used in project valuation? 2) A bond was issued with interest payment every 3 months. The coupon rate of the bond is 12%. The yield to maturity of the bond is 16%. The nominal value of the bond is 1000 TL. The maturity of the bond is 5 years. What is the market price of this bond? Is this bond a discounted or premium bond?
Give typing answer with explanation and conclusion
What is the price of a bond with the following information? It is 1.5 years until expiration. The coupon rate is 7 percent and coupon payments are made once per year. The market rate of return is 5.9 percent. The bond has a face value of 2000 SEK. Tips Draw a time axis so that you do not make any mistakes with the discounting. Don't look at the cash flows as an annuity, but as two separate cash flows. There is always a coupon payment when the bond matures, how long is it then until the next coupon payment? (Answers are rounded to integers) a) 265 b) 2100 c) 1971 d) 1990 e) 2216

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