Market value and the face value of the zero-coupon bond

Assignment Help Financial Management
Reference no: EM13766348

You will be paying $10,000 a year in education expenses at the end of the next two years. Currently the yield curve is flat at 8%.

If you want to fully fund and immunize your obligation with a single issue of a zero-coupon bond, what maturity bond must you purchase?

What must be the market value and the face value of the zero-coupon bond?

Instead of using a single zero-coupon bond, you prefer to use a one-year T-Bill and a five-year zero-coupon bond to fund and immunize your obligation. How much of each security will you buy?

Reference no: EM13766348

Questions Cloud

Firms estimated intrinsic value per share of common stock : You must estimate the intrinsic value of Noe Technologies stock. The end-of-year free cash flow (FCF1) is expected to be $24.00 million, and it is expected to grow at a constant rate of 7.0% a year thereafter. The company’s WACC is 10.0%, it has $125..
What is the firms total corporate value : Mooradian Corporation's free cash flow during the just ended year (t=0) was $180 million, and its FCF is expected to grow at a constant rate of 5.0% in the future.  If the weighted average cost of capital is 12.5 % what is the firm’s total corporate ..
What is the component cost of debt : To help finance a major expansion, Castro Chemical Company sold a no callable bond several years ago that now has 20 years to maturity. This bond has a 9.25% annual coupon, paid semi-annually, sells at a price of $875, and has a par value of $1,000. ..
Using the percent of sales method-projected current assets : The chief financial officer of AJAX Industries expects sales to increase from $8,000,000 in 2010 to $12,000,000 in 2011. Current assets in 2010 are equal to $5,000,000. Using the percent of sales method, projected current assets for 2011. Please show..
Market value and the face value of the zero-coupon bond : You will be paying $10,000 a year in education expenses at the end of the next two years. Currently the yield curve is flat at 8%. If you want to fully fund and immunize your obligation with a single issue of a zero-coupon bond, what maturity bond mu..
Initial cost probability net revenue probability : A project has a life of 10 years, and no salvage value. The firm uses an interest rate of 12% to evaluate projects. This project has an uncertain initial cost and net revenue as below. A. Joint probability distribution for cost and net revenue B.
What is primroses cash conversion cycle : Primrose Corp has $17 million of sales, $3 million of inventories, $4 million of receivables, and $1 million of payables. Its cost of goods sold is 65% of sales, and it finances working capital with bank loans at an 9% rate. What is Primrose's cash c..
What is the maximum profit and loss for this position : An investor purchases a stock for $53 and a put option for $.65 with a strike price of $49. The investor also sells a call option for $.65 with a strike price of $60. What is the maximum profit and loss for this position?
Prepare consolidated financial statements : The journal entries recorded by Magellan during 20X8 on its books if it accounts for its investment in Dipper using the equity method. The eliminating entries needed at December 31, 20X8, to prepare consolidated financial statements.

Reviews

Write a Review

 

Financial Management Questions & Answers

  Lender actually charging on the repayment agreement

Bill Farmer has had some financial problems and cannot pay the $200,000 loan that is due next week (i.e. now). Bill's lender agrees to accept 5 annual payments of $46,000 each for the next 5 years instead, with the first payment due one year from now..

  Stock price accoridng to the constant growth divident module

The Black Bear Company just paid an annual dividend of $5.98. If you expect a constant growth of 8%, and you have a required rate of return of 12.65%. What is the current stock price accoridng to the constant growth divident module (Gordon module)?

  Goal is to maximize his interest income

Walter White has $5,600 that he wants to use to open a savings account. There are five banks located in his area. The rates paid by banks A through E, respectively, are given below. Which bank should White select if his goal is to maximize his intere..

  What is your assessment of the profitability of your firm

What is your assessment of the profitability of your firm in the most recent year and how does your firms profitability compare with that of the competitor

  Explain what was the original annual rate of return

What was the original annual rate of return needed to reach your goal when you started the fund two years ago? With only $140,000 in the fund and 10 years remaining until your first child starts college, what annual rate of return would the fund ha..

  What rate of return can he expect

What is the value of firm L according to MM's proposition 1 with corporate taxes and micky is the holder of $30,000 worth of L's stock. What rate of return can he expect, assuming a dividend payout of 100%.

  About the sales increase

Maggie's Muffins, Inc., generated $4,000,000 in sales during 2013, and its year-end total assets were $2,600,000. Also, at year-end 2013, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and ..

  Find an article about a company reporting key financial news

Search current news (less than 6 months old) and find an article about a company reporting key financial news (e.g. landing a large contract, reporting unusual profits or losses, expressing concern for future profitability, etc.). Briefly review the ..

  Options to be as profitable as an investment in the stock

The price of a stock is $25 and the price of a three-month call option on the stock with a $27 strike is $2.50. Suppose a trader has $2,500 to invest and is trying to choose between buying 1,000 options (10 contracts) or 100 shares of stock. How high..

  Project will need an initial investment

New Co is considering investing in a new hotel project. The project will need an initial investment of 1,000,000 in year zero and will generate 500,000 (after tax) cash flows for the four subsequent years.

  Intrinsic value of deployment specialists stock

Deployment Specialists pays a current (annual) dividend of $1 and is expected to grow at 20% for two years and then at 3% thereafter. If the required return for Deployment Specialists is 10.0%, what is the intrinsic value of Deployment Specialists st..

  Mistakenly made public the personal information

Spotlight on AOL— Common Law. AOL, LLC, mistakenly made public the personal information of 650,000 of its members. The members filed a suit, alleging violations of California law. AOL asked the court to dismiss the suit on the basis of a “forum- sele..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd