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kompoz [17]
1 year ago
11

You are bullish on Telecom stock. The current market price is $40 per share, and you have $8,000 of your own to invest. You borr

ow an additional $8,000 from your broker at an interest rate of 4.0% per year and invest $16,000 in the stock.
Required:

a. What will be your rate of return if the price of Telecom stock goes up by 6% during the next year? (Ignore the expected dividend.) (Round your answer to 2 decimal places.)
Business
1 answer:
Marrrta [24]1 year ago
7 0

The rate of return if the price of Telecom stock goes up by 6% during the next year is 8.00%

What is rate of return?

The rate of return on the bullish strategy is the return on the stock minus the interest on the borrowing.

The share price increase of 6% means the total amount invested would increase by 6%

new value of investment=$16000*(1+6%)

new value of investment=$16,960

interest on borrowing=4%*$8000

interest on borrowing=$320

Gain on investment=new value of investment-initial investment-interest on borrowing

Gain on investment=$16,960-$16,000-$320

Gain on investment=$640

rate of return=gain on investment/equity investment

rate of return=$640/$8000

rate of return=8.00%

Find out more about rate of return on:brainly.com/question/18716615

#SPJ1

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Here's the complete question:

An insurance company is analyzing the following three bonds, each with five years to maturity, and is using duration as its measure of interest rate risk:

a. $10,000 par value, coupon rate = 8%, rb = 0.10

b. $10,000 par value, coupon rate = 10%, rb = 0.10

c. $10,000 par value, coupon rate = 12%, rb = 0.10

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a. Duration on 8% coupon bond = 4.28 years

Year 1 ,2,3,4,5

CFs 800,800,800,800,10800

DCFs 727.27, 661.2, 601.05, 546.41 6705.95

PV=9241.84

Duration = <DCFs/PV

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=39568.1/9241.84

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b. Duration on 10% coupon bond = 4.17 yearsc.

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