(a)
To Discuss:
http://www.tipsinc.com/ficalc/calc.tips is to be surfed. The link for the general-purpose bond calculator is to be chosen. The measures such as yield to maturity, modified duration and bond convexity as the
The change in duration and convexity as coupon changes
Introduction:
When specified payments are made by the issuer to the holder for a given period of time due to an obligation created by a security, then that security is known as Bond.The amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond is known as the face value of the bond. The discount rate due to which the present payments from the bond become equal to its price i.e. it is the average
The changes in duration for percentage change in the yield to maturity anda bond'spriceis stated by Modified Duration.
When a curve is formed due to the association between bond yields and bond prices, its evaluation is known as Convexity.The time taken by the bond to change based on the interest rate changes are also displayed by Convexity.
Convexity is termed as an instrument of risk-management. A bond's exposure to the market risks is measured and managed by Convexity.
The FICALC Fixed Income Securities Calculator is a fixed income calculator. All the functions of the traditional desktop bond calculator can be carried out by it and it works only in the browser.
(b)
To Discuss:
http://www.tipsinc.com/ficalc/calc.tips is to be surfed. The link for the general-purpose bond calculator is to be chosen. The measures such as yield to maturity, modified duration and bond convexity as the bond's price changes are provided by the calculator. The following values are to be experimented by trying different inputs:
The change in duration and convexity as maturity increases.
Introduction:
When specified payments are made by the issuer to the holder for a given period of time due to an obligation created by a security, then that security is known as Bond.The amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond is known as the face value of the bond. The discount rate due to which the present payments from the bond become equal to its price i.e. it is the average rate of return which a holder can expect from a bond, is known as Yield to Maturity.
The changes in duration for percentage change in the yield to maturity and a bond's price is stated by Modified Duration.
When a curve is formed due to theassociation between bond yields and bond prices, its evaluation is known as Convexity.The time taken by the bond to change based on the interest rate changes are also displayed by Convexity.
Convexity is termed as an instrument of risk-management. A bond's exposure to the market risks is measured and managed by Convexity.
The FICALC Fixed Income Securities Calculator is a fixed income calculator. All the functions of the traditional desktop bond calculator can be carried out by it and it works only in the browser.
(c)
To Discuss:
http://www.tipsinc.com/ficalc/calc.tips is to be surfed. The link for the general-purpose bond calculator is to be chosen. The measures such as yield to maturity, modified duration and bond convexity as the bond's price changes are provided by the calculator. The following values are to be experimented by trying different inputs:
The change in duration and convexity as price increases(holding coupon fixed)
Introduction:
When specified payments are made by the issuer to the holder for a given period of time due to an obligation created by a security, then that security is known as Bond.The amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond is known as the face value of the bond. The discount rate due to which the present payments from the bond become equal to its price i.e. it is the average rate of return which a holder can expect from a bond, is known as Yield to Maturity.
The changes in duration for percentage change in the yield to maturity and a bond's price is stated by Modified Duration.
When a curve is formed due to the association between bond yields and bond prices, its evaluation is known as Convexity.The time taken by the bond to change based on the interest rate changes is also displayed by Convexity.
Convexity is termed as an instrument of risk-management. A bond's exposure to the market risks is measured and managed by Convexity.
The FICALC Fixed Income Securities Calculator is a fixed income calculator. All the functions of the traditional desktop bond calculator can be carried out by it and it works only in the browser.
Want to see the full answer?
Check out a sample textbook solution
Chapter 11 Solutions
Connect 1-Semester Access Card for Essentials of Investments
- Plan Funding Consolidated Industries is planning to operate for 10 more years and then cease operations. At that time (in 10 years), it expects to have the following pension benefit obligations: Year 11-15 16-20 21-25 Annual Total Payment $3,500,000 3,000,000 2,500,000 26-30 31-35 2,000,000 1,500,000 The current value of the firm's pension fund is $6.1 million. Assume that all cash flows occur at year-end. a. Consolidated's expected return on pension assets is 12%, and it uses 12% to discount the expected pension benefit payments. What is the present value of the firm's pension fund benefits? Do not round intermediate calculations. Round your answer to the nearest dollar. $ b. Is the plan underfunded or overfunded? Do not round intermediate calculations. Round your answer to two decimal places. Funding ratio = which means the assets are -Select- than the PV of benefits and the plan is -Select- ☑. Less or Greater Overfunded or Underfundedarrow_forwardBenefits and Contributions The Certainty Company (CC) operates in a world of certainty. It has just hired Mr. Jones, age 27, who will retire at age 65, draw retirement benefits for 14 years, and die at age 79. Mr. Jones' salary is $21,000 per year, but wages are expected to increase at the 6% annual rate of inflation. CC has a defined benefit plan in which workers receive 1% of the final year's wage for each year employed. The retirement benefit, once started, does not have a cost-of-living adjustment. CC earns 12% annually on its pension fund assets and uses a 10% rate to discount its expected future benefit payments. Assume that pension contribution and benefit cash flows occur at year-end. Do not round intermediate calculations. Round your answers to the nearest dollar. a. How much will Mr. Jones receive in annual retirement benefits? $ b. What is CC's required annual contribution to fully fund Mr. Jones' retirement benefits? $ c. Assume now that CC hires Mr. Smith at the same…arrow_forwardlab.infoseclearning.com/console/5061763/3047 310-win10 Project Three Milestone - GNS3 File Edit View Control Node Annotate Tools Help e 41 Sales_PC1 0000 Sales_PC2 Sales_PC3 Enforce US Keyboard Layout View Fullscreen Send Ctrl+Alt+Delete Reboot To exit full screen, press and hold esc ■C00/6@ Q Sales_Switch Human Resources_Switch Office_Router Sales PC4 Customer_Service_Switch X: -299.0 Y: -136.0 Z: 1.0 H Type here to search CS_FTP_Server HR_PC2 HR_PC1 7:19 PM 12/14/2024 Barrow_forward
- AGG is a US multinational that manufactures specialist high tech parts in the airline engine industry. AGG is an established company with steady growth in turnover and dividends over the last 10 years. The company is undertaking a projected titled Project Big as a strategic response to the changing market scene. AGG will develop a new state of the art highly automated plant located in Cambodia which is expected to result in cost advantages if it is implemented. The details about the project are below • Initital investment has been estimated at $500m • • The annual pre tax savings in operating costs at current exchange rates has been calculated at $150m for the first four years (starting in the first year) The residual value of the project at the end of the four years is estimated to be $250m The initial investment, net of residual value, qualifies for capital allowance and can be claimed back on a straight line basis over the four years of the project. Current AGG's cost of capital is…arrow_forwardYou have just won the Strayer Lottery jackpot of $11,000,000. You will be paid in twenty-six equal annual installments beginning immediately. If you had the money now, you could invest it in an account with a quoted annual interest rate of 9% with monthly compounding of interest. Calculate the present value of the payments you will receive. Show your calculations using formulas in your paper or provide how to do the calculations in Excel. Explain why there is a difference between the present value of the Strayer lottery jackpot and the future value of the twenty-six annual payments based on your calculations and the information provided.arrow_forwardYou have just won the Strayer Lottery jackpot of $11,000,000. You will be paid in twenty-six equal annual installments beginning immediately. If you had the money now, you could invest it in an account with a quoted annual interest rate of 9% with monthly compounding of interest. Calculate the present value of the payments you will receive. Show your calculations using formulas in your paper or in an attached spreadsheet file.arrow_forward
- The approach uses a weighted average cost of capital that is unique to a particular project while determining the appropriate discount rate.arrow_forwardAn all-equity firm faces a risk-free rate of 4%, a beta of 2, and a market risk premium of 6%. What is its cost of capital? Multiple choice question. 18% 12% 14% 16%arrow_forwardcreated or destroyed. uses the weighted average cost of capital to determine if value is beingarrow_forward
- Under the subjective approach for project evaluation, all proposed projects are placed into several Blank______ categories. Multiple choice question. risk cost revenue returnarrow_forwardUsing the WACC as the discount rate for future cash flows is appropriate only when the proposed investment is Blank______ the firm's existing activities. Multiple choice question. riskier than different from less risky than similar toarrow_forwardSuppose a project has a cost of $20 million and expected cash flows of 10 million per year for two years. If the WACC is 10%, what is the NPV of this project? Multiple choice question. $17.4 million –$2.6 million $2.6 million 0 millionarrow_forward
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education