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A pension plan is obligated to make disbursements of $1 million, $2 million, and $1 million at the end of each of the next three years, respectively. The annual interest rate is 10%. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one-year zero-coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan? (DO NOT ROUND INTERMEDIATE CALCULATIONS. ROUND YOUR ANSWERS TO 2 DECIMAL PLACES.)
Investment in one-year zero-coupon bonds = ? (%)
Investment in perpetuity = ? (%)
Valuation of a firm's financial assets is said to be based on what is expected in the future, in terms of the future performance of the firm, the industry, and the economy. What types of value would you consider when assigning value to a firm's stock..
Suppose the Federal Reserve increases deposits at financial institutions by $59 billion through its open market operations. If the reserve requirement for all deposits is 8%, what is the maximum impact the Fed's actions can have on total deposits?
If you invest $820 today at an interest rate of 8.81 percent compounded daily, how much money will you have in your account in six years? Round the answer to two decimal places.
Suppose you are buying your first house for $400,000 with 20% down payment. You have arranged to finance the remaining amount with a 30-year, monthly payment, amortized mortgage at nominal annual rate of 3.6%. What is the monthly mortgage payment?
Anne Morgan wants to borrow $6,000 for a period of four years. She has two choices. Her bank is offering to lend her the amount at 7.25 percent compounded annually. She can also borrow from her firm and will have to repay a total of $8,130.93 at the ..
Assume Calvin invests in a mutual fund that earns about 10% annually from dividend income and capital gains. Given that Calvin wants to receive $1,000 to $1,500 a month from his mutual fund, what would be the size of his investment account 5 years fr..
Consider a mining project in which there are costs to open the mine and to seal the mine at the end of the project. Consider the following cash flows for the project: -$3,787,879 initially, $8,712,121 one year from today, and -$5,000,000 two years fr..
One More Time Software has 9.4 percent coupon bonds on the market with 15 years to maturity. The bonds make semiannual payments and currently sell for 98.0 percent of par. What is the current yield on the bonds? The effective annual yield?
_____ are the reserves the Fed requires the bank to hold.
The fully-indexed rate on a 5/1 ARM with a maturity of 30 years is determined by the yield on the one-year LIBOR plus a margin of 250 basis points. If the fully-indexed (composite) rate is currently 6%, what is the current yield on the one-year LIBOR..
Suppose Fox Wood Corp. (FWC) has perpetual earnings before interest and taxes (EBIT) of $10 million per year. Fox Wood’s unlevered cost of equity is 12%. FWC is subject to a corporate tax rate of 40%. It has $50 million in permanent debt in its capit..
Fresh Water, INC. Sold an issue of 23-year $1,000 par value bonds to the public. The bonds have a 9.90% coupon rate and pay interest annually. The current market rate of interest on the Fresh Water, INC bonds 9.17%. What is the current market price o..
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