You are managing a portfolio of $1.0 million. Your target duration is 16 years, and you can choose from two bonds: a zero-coupon bon with maturity five years and a perpetuity, each currently yielding 5%. Required: a. How much of (1) the zero-coupon bond and (i) the perpetuity will you hold in your portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Answer is complete and correct. 31.25 % 68.75 % Zero-coupon bond Perpetuity bond b. How will these fractions change next year if target duration is now fifteen years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Answer is complete but not entirely correct. 37.50% 62.50 % Zero-coupon bond Perpetuity bond

You are managing a portfolio of $1.0 million. Your target duration is 16 years, and you can choose from two bonds: a zero-coupon bon with maturity five years and a perpetuity, each currently yielding 5%. Required: a. How much of (1) the zero-coupon bond and (i) the perpetuity will you hold in your portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Answer is complete and correct. 31.25 % 68.75 % Zero-coupon bond Perpetuity bond b. How will these fractions change next year if target duration is now fifteen years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Answer is complete but not entirely correct. 37.50% 62.50 % Zero-coupon bond Perpetuity bond

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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You are managing a portfolio of $1.0 million. Your target duration is 16 years, and you can choose from two bonds: a zero-coupon bond with maturity five years and a perpetuity, each currently yielding 5%. Required: a. How much of (i) the zero-coupon bond and (ii) the perpetuity will you hold in your portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. How will these fractions change next year if target duration is now fifteen years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
You are managing a portfolio of $1.0 million. Your target duration is 18 years, and you can choose from two bonds: a zero-coupon bond with maturity five years and a perpetuity, each currently yielding 4%.Required: a. How much of (i) the zero-coupon bond and (ii) the perpetuity will you hold in your portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) zero-coupon __% perpetuity bond __% b. How will these fractions change next year if target duration is now seventeen years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) zero-coupon __% perpetuity bond __%
You are managing a portfolio of $1 million. Your target duration is 10 years, and you can invest in two bonds, a zero-coupon bond with maturity of five years and a perpetuity, each currently yielding 7.0%. Required: a. What weight of each bond will you hold to immunize your portfolio? b. How will these weights change next year if target duration is now nine years? Complete this question by entering your answers in the tabs below. Required A Required B What weight of each bond will you hold to immunize your portfolio? Note: Round your answers to 2 decimal places. Zero-coupon bond Perpetuity bond % %
What is the Macaulay duration of a 7 percent semiannual coupon bond with two years to maturity and a current price of $1,055.30? (Note: You are required to solve the problem by calculating "Years \times PV / Bond Price" for each cash flow and summing the results. YTM and PV must be calculated using a financial calculator. Round your answer to four decimal places.)
You are managing a portfolio of $1 million. Your target duration is 10 years, and you can invest in two bonds, a zero-coupon bond with maturity of five years and a perpetuity, each currently yielding 10.0%. a. What weight of each bond will you hold to immunize your portfolio? (Round your answers to 2 decimal places.) b. How will these weights change next year if target duration is now nine years? (Round your answers to 2 decimal places.)
Suppose that you buy a TIPS (inflation-indexed) bond with a 1-year maturity and a coupon of 2% paid annually. Assume you buy the bond at its face value of $1,000, and the inflation rate is 10%. a. What will be your cash flow at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What will be your real return? c. What will be your nominal return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
An investor has the option toinvest in one of two bonds whose nominal price is € 1,000 and their coupon, paid annually, 11%. Bond X has a maturity of 5 years and Y is 15 years. Create a table with the price of the two bonds in the case where the discount rate is 8%, 11% and 14% respectively and briefly comment on the results. If the investor wants to minimize interest rate risk in which bond should he invest?
You are managing a portfolio of $1 million. Your target duration is 10 years, and you can invest in two bonds, a zero-coupon bond with maturity of five years and a perpetuity, each currently yielding 4.2% per year. What weight must you hold in the zero coupon bond to immunize your portfolio? Answer in percentage. Round your answers to two decimal places. Do not include the percentage sign (%).
You are managing a portfolio of $1 million. Your target duration is 10 years, and you can invest in two bonds, a zero-coupon bond with maturity of five years and a perpetuity, each currently yielding 5%.a. How much of (i) the zero-coupon bond and (ii) the perpetuity will you hold in your portfolio?b. How will these fractions change next year if target duration is now nine years?
You purchase a 6%, 20-year annual coupon bond for its face value. You will hold this bond for two years in your portfolio (till you receive coupon payments for both years), after which you will sell it. After two years, the market rate is 7%. How much will your bond sell for? What will be your percentage return? a. $899.41 and 1.94% respectively b. $1,000 and 0% respectively c. $899.41 and -4.06% respectively d. $894.06 and 1.41% respectively
You want to invest in a bond for one year, and are deciding between the following two choices - Bond A and Bond B, both of which have a maturity of 1 year and a par value of $1,000.Bond A is a regular(i.e., nominal- return) with a couponrate of 3% per year, payable semi-annually. The current price of Bond A is $998. Bond B is a real-return bond with a coupon rate of 2% per year, payable annually. The current price of Bond B is $1,000. What is the inflation rate (over the next year) that will make the (nominal) ratesof return of the two choices the same?
An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 10% annual coupon. Bond L matures in 19 years, while Bond S matures in 1 year. Assume that only one more interest payment is to be made on Bond S at its maturity and that 19 more payments are to be made on Bond L. What will the value of the Bond L be if the going interest rate is 4%? Round your answer to the nearest cent.$ What will the value of the Bond S be if the going interest rate is 4%? Round your answer to the nearest cent.$ What will the value of the Bond L be if the going interest rate is 10%? Round your answer to the nearest cent.$ What will the value of the Bond S be if the going interest rate is 10%? Round your answer to the nearest cent.$ What will the value of the Bond L be if the going interest rate is 12%? Round your answer to the nearest cent.$ What will the value of the Bond S be if the going interest rate is 12%? Round your answer to the nearest cent

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