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2 years ago

Investment Management Inc. (IMI) uses the capital market line to make asset allocation recommendations. IMI derives the

Business

1 answer:

algol132 years ago

5 0

Answer:

The expected return that IMI can provide subject to Johnson's risk constraint is 8.5%

Explanation:

Capital Market Line (CML)

Expected return on the market portfolio, E( $r_m$ ) = 12 %

Standard deviation on the market portfolio, σ $_p$ = 20%

Risk-free rate, $r_f$ = 5%

E( $r_c$ ) = $r_f$ + [ E( $r_p$ ) - $r_f$ ] × ( σ $_c$ ÷ σ $_p$ )

= 0.05 + [ 0.12 - 0.05] × (0.10 ÷ 0.20)

= 8.5%

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What happens to the price of a three-year annual coupon paying bond with an 8% coupon when interest rates change from 8% to 6.85

ruslelena [56]

Face Value of bond = $1000

Annual Coupon Payment = $1000*8%

= $80

No of years to maturity(n) = 3 years

When the Market Interest rate was 8%, the Price of the bond will be the same as the Par value which is $1000 because when the Coupon rate and Market Interest rate are the same the Bond sells at par Value.

So, At an 8% Interest rate price is $1000

- Interest rate(YTM) changed to 8.86%

Calculating the Price of Bond:-

Price = \frac{CouponPayment}{(1+YTM)^{1}}+\frac{CouponPayment}{(1+YTM)^{2}}+...+\frac{CouponPayment}{(1+YTM)^{n}}+\frac{FaceValue}{(1+YTM)^{n}}

Price = \frac{80}{(1+0.0886)^{1}}+\frac{80}{(1+0.0886)^{2}}+\frac{80}{(1+0.0886)^{3}}+\frac{1000}{(1+0.0886)^{3}}

Price =$203.008 + $775.166

Price = $978.17

So, when the Interest rate changed to 8.86% the price falls to $978.17

Change in Price due to increase in Interest rate = $978.17 - $1000

= -$21.83

Hence, the price decreased by $21.83

Learn more about interest here

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7 0

1 year ago

Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collect

dangina [55]

Answer:

The correct option : B. Cost = $ 130.00 + $ 5.90 x Machine - hours

Explanation:

Let's use the following method to solve the given problem

Now applying the high-low method of cost estimation,

High => November, 5,300 machine hours

Low => March, 2,300 machine hours

Arranging it in a simultaneous equations for total cost:

We can let fixed cost per month to be F, and the variable cost per machine -hour be V, and the number of machine-hours be Q.

Therefore

Total cost = F + VQ

High => F + 5,300Q = $ 31,400

Low => F + 2,300Q = $ 13,700

Subtracting Low from High, we have 3,000Q = $ 17,700 or Q = $ 5.90 per machine hour ................equation one

F = $ 13,700 - ( 2,300 x $ 5.90) = $ 130......................................................................equation two

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3 years ago

Cassie has a line of vanilla-scented body lotion. She has recently decided to add vanilla-scented body scrub and vanilla-scented

Stels [109]

The answer is D. Line extension

8 0

3 years ago

Read 2 more answers

In routine jobs where workers have little flexibility, the relationship between job satisfaction and work performance is:

Ira Lisetskai [31]

Answer:

The correct answer is A. Generally small and influenced by other factors

Explanation:

Flexibility in this case refers to the development of more dynamic tasks without taking into account time, and is presented as the way in which employees get on with other tasks in order to learn new things. Job satisfaction is distinguished by aspects of their tasks, where the level of growth is perceived under static working conditions.

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2 years ago

Blue ridge bicycles uses a standard part in the manufacture of several of its bikes. the cost of producing 45 comma 000 parts is

7nadin3 [17]

Answer:

If Blue ridge decides to purchase the parts instead of manufacturing them, their total costs will increase by $21,300

Explanation:

currently Blue Ridge's costs are:

variable costs = $69,000

fixed costs = $69,000

total $138,000

total cost per unit = $138,000 / 45,000 units = $3.0667 per unit

if Blue Ridge decide to outsource the production of the parts:

variable costs = 45,000 x $4 = $180,000

decrease in fixed costs = $69,000 x -30% = -$20,700

total costs = $159,300

If Blue ridge decides to purchase the parts instead of manufacturing them, their total costs will increase by ⇒ $159,300 - $138,000 = $21,300

7 0

3 years ago

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