User Account

All Pages

Modified duration of the bond position

Assignment Help Business Economics
Reference no: EM131596975

A manager has a $50 million portfolio that consists of 50% stock and 50% bonds (i.e., $25 million each)

- The beta of the stock position is 0.8.

- The modified duration of the bond position is 6.8

The manager wishes to achieve an effective mix of 60% stock (i.e., $30 million) and 40% bonds. Since the move is only temporary, and rather than having to decide which bonds to sell and which stocks to buy to achieve the desired mix, the manager will use futures contracts.

- The price of the stock index futures contract is $300,000 (including the multiplier), and its beta is 1.1.

- The price and modified duration of the bond futures contracts are $102,000 and 8.1 respectively.

a. How many stock index futures do you need to use? Should you short or long the stock index futures?

b. How many bond futures do you need to use? Should you short or long the bond index futures?

Reference no: EM131596975

Questions Cloud

What if the tvm compounding is on a monthly basis : What if the TVM compounding is on a monthly basis? Would your answer be the same? Explain by showing calculations below
Briefly summarize the problem of evil and suffering : Briefly summarize the Christian worldview's response to the problem of evil and suffering. Cite and reference the lecture and/or Chapter 9 in the textbook.
Provide the journal entry for the period payroll : On December 31, provide the journal entry for the period's payroll. Refer to the Chart of Accounts for exact wording of account titles
How the words histories help you to make sense of the text : how the words' histories help you to make sense of the text. James Baldwin, If Black English Isn't a Language, Then Tell Me, What Is?
Modified duration of the bond position : A manager has a $50 million portfolio that consists of 50% stock and 50% bonds (i.e., $25 million each)
What is the monthly repayment on the loan : May borrows $750,000 to buy a unit. Her loan calls for equal monthly instalments for 10 years. Interest on the loan is 6.5% p.a.
Write paragraphs about how the essays were built : write paragraphs about HOW THE ESSAYS were built. Describe the language, describe the themes, describe the tone, describe what was particularly moving.
Compute the combined tax liability of the two corporations : Avis's taxable income for the year is $300,000 and Best's taxable income for the year is $425,000. compute the combined tax liability of the two corporations
Determining the clients stage of change : The major tenets of motivational interviewing were designed to provide clinicians with tools to facilitate the change process in clients.

Reviews

Write a Review

Business Economics Questions & Answers

  Find the ATR of someone with a taxable income

A nation has a tax rate of 20% on the first $20,000 of taxable income, 30% on the next $30,000, 40% on the next $20,000 and then 50% on all taxable income above $70,000. Find the ATR of someone with a taxable income of $100,000. How much is a tax cre..

  Wth symmetric information

In Akerlof’s lemons problem, with symmetric information, suppose that 5 cars are available in equal quantity and with quality levels 0, 1, 2, 3, and 4. Suppose the sellers have a reservation price of $2,000 per unit of quality, and the buyers value c..

  Favor of economic stabilization

1. Explain the main arguments in favor of economic stabilization during recessions. Explain why policy lags could make stabilization policies counterproductive.

  The tradeoffs you face with differentiation and the cost

This week, you have a car to sell. You want to purchase a new vehicle and the dealer is offering you, well, almost nothing for the car you have now. So you’re going to sell it outright. Describe the competitive positioning you face and are going to t..

  Illustrate what other options might be considered

Smoking is banned from most public buildings in most states across the U.S. today. What type of market failure is the smoking ban intended to address. Illustrate what other options might be considered.

  Square footage of the house-age of the house

Jenny Wilson is the owner and broker of a real estate company in Montgomery, Alabama. This company is known as Jenny Wilson Realty. for her real esate company, Ms. Wilson wants to develop a regression model to explain the selling price (SP) for a hou..

  Eventually becomes ineffective means of raising revenues

Elasticity and Demand1434.Over the past 30 years, cigarette makers did not worry too much about rising excise taxes on their product because they could simply raise prices to generate the extra revenue needed to pay the higher taxes. why continued in..

  Solow growth model by means of technology

Elucidate what would be the immediate and long run effects on c, k, and y. Explain by drawing the path of these variables. Consider that you impose the new saving rate.

  Role o the cost of capital in the valuation process

What is the role o the cost of capital in the valuation process, and what is one of the primaries uses the cost of capital (meaning in what area of chance is the ost often applied)? Why is it important for financial managers to understand the cost of..

  Optimistic conclusion-right legal and procedural safeguards

In "In Praise of Big Brother" (pp. 203-215), James Stacey Taylor argues for the optimistic conclusion that, with the right legal and procedural safeguards, large-scale governance surveillance would have many positive consequences.

  Reducing price also reduces contribution margins

(Marketting) When introducing new products, some manufacturers set a high initial price and then reduce price later. However, reducing price also reduces contribution margins, which in turn impacts profitability. To be profitable, the reduced price m..

  Receive an inheritance-return that you can depend on forever

If you receive an inheritance of $10,000 today, how long do you have to invest it at 8% per year to be able to withdraw $2,000 every year forever? Assume the 8% per year is a return that you can depend on forever.

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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