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You are the manager of a bond portfolio of $10 million face value of bonds worth $9,448,456. The portfolio has a yield of 12.25 percent and a dura- tion 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 lower its duration to 5 years. A T-bond futures contract with the ap- propriate expiration is priced at 72 3/32 with a face value of $100,000, an implied yield of 12 percent, and an implied duration of 8.43 years.
a. Should you buy or sell futures? How many contracts should you use?
b. In six months, the portfolio has fallen in value to $8,952,597. The futures price is 68 16/32. Determine the profit from the transaction.
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It would like to use a swap to synthetically alter the payments on the loan it holds. The rate it could obtain on a plain vanilla swap is 7.25 percent. Explain how the bank would use a swap to achieve this objective.
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If according to the historical financial statements for Starbucks, the debt to assets ratio is 4.00 percent and is forecasted to go to zero in 2003.
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Create a separate new matrix that summarizes the additional risk factors for this firm launching a management consultancy or legal services line. What additional risk factors are you adding to your matrix
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