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Sonja [21]
2 years ago
6

A pension fund has an average duration of its liabilities equal to 17 years. The fund is looking at 4-year maturity zero-coupon

bonds and 4% yield perpetuities to immunize its interest rate risk. How much of its portfolio should it allocate to the zero-coupon bonds to immunize if there are no other assets funding the plan
Business
1 answer:
Dmitry [639]2 years ago
8 0

Answer:

40.91%

Explanation:

Duration perpetuity = 1.04/4%

Duration perpetuity = 1.04/0.04

Duration perpetuity = 26 years

Now, 17 = (Wz)*4 + (1 - Wz)*26

17 = 4Wz + 26 - 26Wz

26Wz - 4Wz = 26 - 17

22Wz = 9

Wz = 9/22

Wz = 0.409091

Wz = 40.91%

So, 40.91% of its portfolio should be allocated to the zero-coupon bonds to immunize, if there are no other assets funding the plan.

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2 years ago
Cost of Debt. Micro Spinoffs Inc. issued 20-year debt a year ago at par value with a coupon rate of 8%, paid annually. Today, th
stealth61 [152]

Answer:

5.925%

Explanation:

For computing the cost of debt, first we have to determine the YTM by using the Rate formula that is shown in the attachment

Given that,  

Present value = $1,050

Assuming figure - Future value or Face value = $1,000  

PMT = 1,000 × 8%  = $80

NPER = 20 year - 1 year = 19 year

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative  

So, after solving this,  

1. The pretax cost of debt is 7.50%

2. And, the after tax cost of debt would be

= Pretax cost of debt × ( 1 - tax rate)

= 7.50% × ( 1 - 0.21)

= 5.925%

8 0
2 years ago
In exchange for $1,500 legal services to help set up the new company, Hickory Grove Corporation issued 100 shares of $10 par val
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A credit to common stock for 1000

8 0
3 years ago
Richardson Supply's $3.9 million cost of inventory at the end of last year was understated by $1.2 million.
Triss [41]

Answer:

Part a. Was last year's reported gross profit of $2.9 million overstated, understated, or correct? What was the correct amount of gross profit last year?

Gross Profit was Understated by $1.2 million

Correct Gross Profit is $4.1 million

Part b. Is this year's gross profit of $3.6 million overstated, understated, or correct? What is the correct amount of gross profit for the current year?

Gross Profit is Overstated by $1.2 million

Correct Gross Profit is $2.4 million

Part c. Was last year's reported cost of goods sold of $5.4 million overstated, understated, or correct? What was the correct amount of cost of goods sold last year?

Cost of Goods Sold was Overstated by 1.2 million

Correct Cost of Goods Sold is $4.2 million

Part d. Is this year's cost of goods sold of $5.7 million overstated, understated, or correct? What is the correct amount of cost of goods sold for this year?

Cost of Goods Sold was Understated by 1.2 million

Correct Cost of Goods Sold is $6.9 million

Explanation:

Closing Inventory Reduce the Cost of Sales at the end of the year.It is Transferred to the Statement of Financial Position to depict a resource controlled by the entity from which economic benefit is expected to flow in the entity - Asset.

Opening Inventory Increase the cost of Sales because it presents a depletion of Assets of Inventory.

Cost of Sales and Gross Profit have an Inverse Relationship.

6 0
3 years ago
Technology Corp. is considering a $238,160 investment in a new marketing campaign that it anticipates will provide annual cash f
LUCKY_DIMON [66]

Answer:

B) IRR is 3%. Reject the project.

Explanation:

We can use an excel spreadsheet to calculate the internal rate of return (IRR) for this investment:

we can use the IRR function =IRR(values,[guess])

where:

  • value 1 = -238160
  • value 2 to 6 = 52000
  • guess = optional, not required

=IRR(-238160,52000,52000,52000,52000,52000) = 3%

4 0
3 years ago
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