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value U.S. government bond portfolio for an institution. She anticipates a small parallel shift in the yield curve and wants to fully hedge the portfolio against any such change. PORTFOLIO AND TREASURY BOND FUTURES CONTRACT CHRACTERISTICS Security - Modified Duration - Basis Point Value - Conversion Factor for Cheapest to Deliver Bond - Portfolio Value/Future Contract Price Portfolio U.S Treasury bond futures contract - 10 year/ 8 years - $100,000 $75.32 – Not applicable 1 - $100,000,000 94-05 a. Discuss two reasons for using futures rather than selling bonds to hedge a bond portfolio. No calculations required. b. Formulate Klein’s hedging strategy using only the futures contract shown. Calculate the number of futures contracts to implement the strategy. Show all calculations. c. Determine how much of the following would change in value if interest rates increase by 10 basis points as anticipated. Show all calculations. 1. The original portfolio 2. The treasury bond futures position 3. The newly hedged portfolio d. State three reasons why Klein’s hedging strategy might not fully protect the portfolio against interest rate risk. e. Describe a zero-duration hedging strategy using only the government bond portfolio and options on U.S. Treasury bond futures contracts. No calculations required.
Metroplex Corporation will pay a $4.80 per share dividend next year. The company pledges to increase its dividend by 4.00 percent per year indefinitely.
How can a corporation adjust their capital structure to enhance their EPS (Earnings per share)? Find out an example of a corporation that recently reproted their EPS.
ABC is expected to pay a dividend of $1.7 per share at the end of the year. The stock sells for $148 per share, and its required rate of return is 17.9%. The dividend is expected to grow at some constant rate, g, forever. What is the growth rate (..
Myers Business Systems is estimating the introduction of a new product. The possible levels of unit sales and probabilities of their occurrence are listed below:
q tapley inc.s current target capital structure has a target debt ratio dta of 60 percent. the firm can raise up to 5
Given the following data: stockholders equity = $1,250; price/earnings ratio =10; shares outstanding =25; market/book ration =1.75.
Working capital is expected to increase by $5,000 at the inception of the project, but this amount will be recaptured at the end of year five. What is the incremental free cash flow for year one?
One, two and three year maturity, default-free, zero-coupon bonds have yields-to-maturity of 7%, 8% and 9% respectively. What is the implied one-year forward rate, one year from today?
The last reported earnings for White Corp. were $1.50 last year and earnings are expected to grow at 5% indefinitely. If their dividend policy is to pay out 50% of earnings in dividends, what is next year's dividend?
What are the strengths and weaknesses of financial ratio analysis?
Napa Auto Parts last dividend was $1 and the corporation expects to experience no growth for next three years. However, Napa will grow at an annual rate of 10 percent between the 3rd and 4th year and between the fourth and 5th years.
The other alternative is the purchase of a supermarket chain, also costing $100 million. It too, has an expected net present value of $20 million. The firms management is interested in reducing the variability of its earnings.
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