PRINCIPLES OF MANAGERIAL FINANCE (SUBSCR
PRINCIPLES OF MANAGERIAL FINANCE (SUBSCR
15th Edition
ISBN: 9780137695621
Author: SMART
Publisher: PEARSON C
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Chapter 6, Problem 6.6WUE

You have two assets and must calculate their values today based on their payment streams and required returns. Asset 1 has a required return of 9% and will produce a stream of $300 starting in 1 year and continuing indefinitely. Asset 2 has a required return of 7% and will produce a cash flow of $1,400 in 1 year, $1,300 in 2 years, and $850 in 3 years.

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An insurance company has liabilities of £7 million due in 10 years' time and £9 million due in 17 years' time. The assets of the company consist of two zero-coupon bonds, one paying £X million in 7 years' time and the other paying £Y million in 20 years' time. The current interest rate is 6% per annum effective. Find the nominal value of X (i.e. the amount, IN MILLIONS, that bond X pays in 7 year's time) such that the first two conditions for Redington's theory of immunisation are satisfied. Express your answer to THREE DECIMAL PLACES.
An individual is investing in a market where spot rates and forward rates apply. In this market, if at time t=0 he agrees to invest £5.3 for two years, he will receive £7.4 at time t=2 years. Alternatively, if at time t=0 he agrees to invest £5.3 at time t=1 for either one year or two years, he will receive £7.5 or £7.3 at times t=2 and t=3, respectively. Calculate the price per £5,000 nominal that the individual should pay for a fixed-interest bond bearing annual interest of 6.6% and is redeemable after 3 years at 110%. State your answer at 2 decimal places.
The one-year forward rates of interest, f+, are given by: . fo = 5.06%, f₁ = 6.38%, and f2 = 5.73%. Calculate, to 4 decimal places (in percentages), the three-year par yield.

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