Question

Question 3 Homework. Unanswered You own a bond portfolio worth $51,000. You estimate that your portfolio has an average YTM of 5.9% and a Modified Duration of 14 years. If your portfolio's average YTM were to decrease by 4 basis points, how much would the value of your portfolio change? Round to the nearest cent. (Hint: Answer is positive if the portfolio value increases and negative if the value decreases] Numeric Answer: Unanswered 3 attempts left Submit Question 4 Homework. Unanswered You estimate that a company's enterprise value is $183 million. If it has $69 million debt, $11 million in cash, and there are 13 million shares outstanding, what should be its stock price? Round to one decimal place. Numeric Answer: Unanswered 3 attempts left Submit

Answer 1

Question 3:

Modified Duration depicts the change in bond price (as percentage) consequent to 100 bps change in YTM. If the change in YTM is increase, bond price will decrease and vice versa.

In the given case,

Modified Duration of the portfolio= 14 years

Change in YTM= Decrease by 4 basis points (0.04%)

Therefore, change in portfolio value= Mod Duration* Change in YTM= 14*0.04% = 0.56% (Increase)

Also given, current value of portfolio= $51,000

Therefore, change in portfolio value= $51,000*0.56% = $285.60 (Increase)

Question 4:

Enterprise value (EV)= Market Capitalization + Debt – Cash

Therefore, Market Capitalization= EV - Debt + Cash

Given, EV= $183 Million, Debt= $69 Million and Cash= $11 Million

Therefore, Market capitalization= $183 Million- $69 Million + $11 Million= $125 Million

Number of shares outstanding= 13 Million

Therefore, Share price= Market Capitalization/Number of shares

= $125 Million/13 Million = $9.6