Bond portfolios would immunize you from interest rate risk

Assignment Help Financial Management
Reference no: EM131043949

You want to invest in a bond portfolio that you will use later to payoff a liability due in 7 years. Which of the following bond portfolios would immunize you from interest rate risk.

A) Zero coupon bonds with 7 years to maturity

B) A portfolio of bonds with a duration of 7 years

C) A portfolio of bonds with an average 7 years to maturity

D) A and B

E) A and C

Reference no: EM131043949

Questions Cloud

What is the total aftertax cash flow to shareholders : National Business Machine Co. (NBM) has $3 million of extra cash after taxes have been paid. NBM has two choices to make use of this cash. One alternative is to invest the cash in financial assets. The resulting investment income will be paid out as ..
Maximizing rule for a competitive market firm : The profit maximizing rule for a competitive market firm is to produce until MR = MC. What would happen/should the firm do if the competitive firm produced where marginal cost was lower than marginal revenue?
What are the ceos and shareholders : What are the CEOs and shareholders? What alternatives and solutions would you suggest to solve this ethical dilemma?
Reserve requirement applicable to all deposits : Compute the maximum change in total deposits that would result if deposits at financial institutions were immediately decreased by 120 billion and the reserve requirement applicable to all deposits was a) 5% b) 10% c) 50% d) 100%
Bond portfolios would immunize you from interest rate risk : You want to invest in a bond portfolio that you will use later to payoff a liability due in 7 years. Which of the following bond portfolios would immunize you from interest rate risk.
What is the pretax required return on stock : The Gecko Company and the Gordon Company are two firms whose business risk is the same but that have different dividend policies. Gecko pays no dividend, whereas Gordon has an expected dividend yield of 4 percent. Suppose the capital gains tax rate i..
Moralization of technologies - military drones : ‘Moralization' of Technologies - Military Drones: A Case Study (http://www.eir.info/2012/05/02/moralization-of-technologies-military-drones-a-case-study/). You are required to identify the ethical dilemma and undertake an ethical analysis/discussi..
Job satisfaction research report project requirements : The purpose of the 3.2.1 Project is to give you the chance to network with professionals working in your field and to find out about what factors contribute to truly feeling happy at work. This is really a "job satisfaction essay" that asks you to..
Assume the pretax cost of debt is less than cost of equity : Assume the pretax cost of debt is less than the cost of equity.

Reviews

Write a Review

Financial Management Questions & Answers

  Issuing new common stock to raise investment funds

Issuing new common stock to raise investment funds is more expensive than using retained earnings as the funding source

  The risk-free rate of return is currently

The risk-free rate of return is currently 0.02, whereas the market risk premium is 0.05. If the beta of RKP, Inc., stock is 1.7, then what is the expected return on RKP?

  Interesting characteristics about new belgium brewing case

An interesting characteristics about the New Belgium Brewing case is that the company

  Reconciling the differences between the two balances

Legder Hawkins Company showed a cash balance of $ 17,569 per 3 July 2015. Hawkins Bank account showed cash balance of $ 16,432. the following information may be useful in reconciling the differences between the two balances is as follows: a deposit o..

  What amount of income tax expense

Standish Company began the year with a balance in its Income Taxes Payable account of $5,000. The year-end balance in the account was $18,000. The company uses the indirect method in the Operating Activities section of the statement of cash flows. Wh..

  Taxable project with an expected before-tax return

A corporation has an average tax rate of 25% and a marginal tax rate of 39%. The corporation can invest in a tax-free project with an expected before-tax return of 6.8% or in a taxable project with an expected before-tax return of 10%.

  What is the cost of internal common equity

Jiffy Co. expects to pay a dividend of $3.00 per share in one year. The current price of Jiffy common stock is $60 per share. Flotation costs are $3.00 per share when Jiffy issues new stock. What is the cost of internal common equity if the long-term..

  Pension fund pay for calgary parking authority business

How much would a pension fund pay for the Calgary parking authority business that earns a perpetual 40mm that grows with inflation? Ignore taxes and use 5% discount rate

  Treasury security for you to consider making an investment

Inflation is expected to be 3 percent over the next year. You desire an annual real rate of return of 2.5 percent on your investments. What nominal rate of interest would have to be offered on a one-year Treasury security for you to consider making a..

  Fairly compensated for the risk of the firm

The risk free rate is 7%, the return in the market is 10%, and the beta is 1.30. What return must you receive to be satisfied that you are being fairly compensated for the risk of the firm?

  Standard vehicles to hybrid vehicle production

An automobile manufacturer is converting an assembly line from standard vehicles to hybrid vehicle production. Conversion will cost $100 million. If the interest rate is 15%, how many years will it take until the present worth of the net benefits equ..

  Increasing dividends may not always increase the stock price

Increasing dividends may not always increase the stock price, because less earnings may be invested in the firm and that impedes growth. Walter's dividend is expected to grow at a constant growth rate of 6.50% per year. What do you expect to happen t..

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