ZuoTi.Pro
Question

A portfolio manager buys $20 million par value of a 15-year bond that promises to pay...

A portfolio manager buys $20 million par value of a 15-year bond that promises to pay 10% interest ratio per year. The reinvestment rate per period is 8%.

A) Show that the economic profit of investing in the bond at the market price is 0

B) What will be the excess return in part A

C) Show that at the yield of 8%. The investment in the bond will grow at the annual rate of 8%

D) Calculate the Capital Gain Rate if the bond is bought at the market price

business   accounting   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

25 అ L g Lul be శింక RuP8+,Eyrs) +/z»n కీ జ 3) (శిం x»8 + tz.p ] - 20. 17012 3042cabital gein. శిబుగుయు దిlocosent value of Bond beshen Hearher Rericeis 2) 8+Pu ARCad, 16 yecor) 2$x 8056. he12 Miniam, Economic Peluofit (A) 17-12 (B

0 0
Add a comment
Know the answer?
Add Answer to:
A portfolio manager buys $20 million par value of a 15-year bond that promises to pay...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 16. A portfolio manager owns S 15 million par value of bond ABC. The bond is trading at 80 and has a modified duration of 5. The portfolio manager is considering swapping out of bond ABC and into...

    16. A portfolio manager owns S 15 million par value of bond ABC. The bond is trading at 80 and has a modified duration of 5. The portfolio manager is considering swapping out of bond ABC and into bond XYZ. The price of this bond is 85 and it has a modified duration of 4 Answer the below questions. (a) What is the dollar duration of bond ABC per 100-basis-point change in yield? b) What does that mean? Explain e)...

  • 9. Predicting Bond Values (Use the chapter appendix to answer this problem.) The portfolio manager of...

    9. Predicting Bond Values (Use the chapter appendix to answer this problem.) The portfolio manager of Ludwig Company has excess cash that is to be invested for four years. He can purchase four-year Treasury notes that offer a 9 percent yield. Alternatively, he can purchase new 20-year Treasury bonds for $2.9 million that offer a par value of $3 million and an 11 percent coupon rate with annual payments. The manager expects that the required return on these same 20-year...

  • An investor buys a discount bond today that promises a face value payout of $4,500 in...

    An investor buys a discount bond today that promises a face value payout of $4,500 in exactly four years. The investor holds it for one year and then decides to sell it in a secondary market to a different investor. If the interest rate is 6%, what price does he sell it for? 3,460.66 3,555.0 3,778.29 3,899.85

  • A 20-year, 8% semiannual coupon bond with a par value of $1,000 may be called in...

    A 20-year, 8% semiannual coupon bond with a par value of $1,000 may be called in 5 years at a call price of $1,040. The bond sells for $1,100. (Assume that the bond has just been issued.) Basic Input Data: Years to maturity: 20 Periods per year: 2 Periods to maturity: Coupon rate: 8% Par value: $1,000 Periodic payment: Current price $1,100 Call price: $1,040 Years till callable: 5 Periods till callable: a. What is the bond's yield to maturity?...

  • A bond future currently bond portfolio with a face value $10 million. The current market value...

    A bond future currently bond portfolio with a face value $10 million. The current market value of the portfolio is only 92.2% of face, however. The fund managers anticipate a rise in bond yield in the near future so they desire a T-bond hedge strategy to protected themselves. Given their rate expectations, should they short or go long in T-bond futures? Explain The risk manager use $100,000 face value T bond contracts. If they use a 1-1 (naïve) hedge ration...

  • Bond Valuation A 20-year, 8% semiannual coupon bond with a par value of $1,000 sells for...

    Bond Valuation A 20-year, 8% semiannual coupon bond with a par value of $1,000 sells for $1,100. (Assume that the bond has just been issued.) 20 Basic Input Data: Years to maturity: Periods per year: Periods to maturity: Coupon rate: Par value: Periodic payment: Current price 8% $1,000 $1,100 c. What would be the price of a zero coupon bond if the face value of the bond is $1,000 in 3 years and if the yield to maturity of similary...

  • Last year a portfolio manager at PIB bought two million shares of Volkswagen’s stock at €75...

    Last year a portfolio manager at PIB bought two million shares of Volkswagen’s stock at €75 per share and sold it one year later at €80. The spot exchange rate one year ago was $1.50 = €1 and the spot rate prevailing at the end of the year was $1.40 = €1. a. What are the values of portfolio manager’s gain(loss) in Euro (provide amount and percentage)? b. What the values of portfolio manager’s gain(loss) in USD (provide amount and...

  • 1) You are the manager of a bond portfolio of $10 million face value of bonds...

    1) You are the manager of a bond portfolio of $10 million face value of bonds worth $9,448,546. The portfolio has a duration of 8.33. You plan to liquidate the portfolio in six months and are concerned about an increase in interest rates that would produce a loss on the portfolio. You would like to convert your portfolio to synthetic cash. A T-bond futures contract with the appropriate expiration is priced at 72 3/32 with a face value of $100,000,...

  • #16 value investing beats growth investing over extended periods of time. A Corporate Bond-Face Value Par...

    #16 value investing beats growth investing over extended periods of time. A Corporate Bond-Face Value Par Value of $1000 with an 8% coupon interest rate. This Bond has no call features. Fill in the table below: Bought at Par or Face Value. What is the purchase price? 65. Bought at a 20% discount to Par or Face Value, what is the purchase price? Bought at a 50% discount to Par or Face Value. What is the purchase yield? Bought at...

  • 2 Suppose that you are considering investing in a four-year bond that has a par value...

    2 Suppose that you are considering investing in a four-year bond that has a par value of $1,000 and a coupon rate of 6%. (a) Draw a timeline for this bond (b) What is the price of the bond if the market interest rate on similar bonds is 6%? what is the (c) Suppose that you purchase the bond, and the next day the market interest rate on similar (d) Now suppose that one year has gone by since your...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT