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Elliot Karl is a 35-year old bank executive who has just inherit a large amount of money. Having spent several years in the bank's investment department, he is well aware of the concept of duration and decides to apply it to his bond portfolio. In particular, he intends to use $1 million of his inheritance to purchase four US Treasury bonds: 1) An 8.5%, 13-year bond that is priced at $1,045 to yield 7.47%. 2) A 7.875%, 15-year bond that is priced at $1,020 to yield 7.60%. 3) A 20-year zero-coupon stripped treasury that is priced at 202 to yield 8.22%. 4) A 24-year, 7.5% bond that is priced at $955 to yield 7.90%. a. Find the duration and the modified duration of each bond b. Find the duration of the whole bond portfolio if Elliot puts $250,000 into each of the four U.S. Treasury bonds. c. Find the duration of the portfolio if Elliot puts $360,000 each into bonds 1 and 3 and $140,000 each into bonds 2 and 4. d. Which portfolio in b or c question should he select if he thinks rates are about to head up and he wants to avoid as much price volatility as possible? Explain. From which portfolio does he make more in annual interest income? Which portfolio would you recommend, and why?
If interest rates suddenly fluctuated and the value of your firm's equity were to decrease by $120,000, what is the new interest rate in the market?
Discuss the importance of banks for the flow-of-funds function of the financial system.
A firm has sales of $1,090, net income of $182, net fixed assets of $478, and current assets of $270. The firm has $94 in inventory. What is the common-size statement value of inventory?
calculation of external funds needed by the company.in april 1991 the owner and manager of pops recycling company j. r.
according to the text the npv rule states that an investment should be accepted if the npv is positive and rejected if
why do you think it is easier for firms with weak credit positions to obtain lease financing than bank loan
However, Stock A's standard deviation of returns is 12% versus 8% for Stock B. Which stock should this investor add to his or her portfolio, or does the choice not matter?
Home Grown Tomatoes stock returned 28.7 percent, 2.6 percent, 13.1 percent, 12.2, and 11.8 percent over the past five years, respectively. What is the arithmetic average return for this period? not sure which one?
Describe the five principles of crisis action planning in organizational crisis management.
The firm owns this money. The market portfolio generates the payoff (200, 250, 300) and has an expected return of 8%. The risk free rate is 3%. Suppose CAPM holds.
Reports should provide a basis for measuring the return on investment for each division. Thus, in addition to revenue and expense accounts, reports should show assets assigned to each division.
archer daniels midland company is considering buying a new farm that it plans to operate for 10 years. the farm will
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