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Travka [436]
2 years ago
9

You are managing a portfolio of $1 million. Your target duration is 10 years, and you can choose from two bonds: a zero-coupon b

ond with maturity five years, and a perpetuity, each currently yielding 5%. a. How much of (i) the zero-coupon bond and (ii) the perpetuity will you hold in your portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. How will these fractions change next year if target duration is now nine years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Business
1 answer:
GuDViN [60]2 years ago
7 0

Answer:

Ai.Zero coupon bonds = 68.75%

Aii. Perpetuity= 0.3125

Bi. Zero coupon bonds = 70.58%

Bii. Perpetuity= 0.2942

Explanation:

ai. Calculation for How much of the zero-coupon bond

Duration of Zero Coupon Bond = 5 years

Duration of Perpetuity = 1.05/0.05 = 21 years

Using this formula

Dp=W×D1 +(1-W)×D2

Let plug in the formula

10 = 5w + (1 - w)21

10 = 5w + 21 - 21w

21w-10w=21-5

11w=16

w=11/16

w = 0.6875*100

w=68.75%

Zero coupon bonds = 68.75%

Therefore How much of the zero-coupon bond

you hold in your portfolio will be 68.75%

aii. Calculation for the perpetuity you will hold in your portfolio

Perpetuity= 1 - 0.6875

Perpetuity= 0.3125

Therefore the perpetuity you will hold in your portfolio will be 0.3125

bi. Calculation for how will these fractions change next year if target duration is now nine years

Duration of Zero Coupon Bond = (5 -1) =4years

Duration of Perpetuity = 1.05/0.05 = 21 years

Using this formula

Dp=W×D1 +(1-W)×D2

Let plug in the formula

9 = 4w + (1 - w)21

9 = 4w + 21 - 21w

21w-9w=21-4

12w=17

w=12/17

w = 0.7058×100

w=70.58%

Zero coupon bonds = 70.58%

Therefore How much of the zero-coupon bond

you hold in your portfolio will be 70.58%

bii. Calculation for the perpetuity you will hold in your portfolio

Perpetuity= 1 - 0.7058

Perpetuity= 0.2942

Therefore the perpetuity you will hold in your portfolio will be 0.2942

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Explanation:

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8 0
3 years ago
Stock Y has a beta of 1.2 and an expected return of 14.5 percent. Stock Z has a beta of .7 and an expected return of 9.3 percent
emmasim [6.3K]

Answer:

Reward to risk ratio = (Expected return - Risk free rate) / Beta  

Reward to risk ratio of Y = ( 0.145 - 0.056) / 1.2

Reward to risk ratio of Y = 0.089 / 1.2

Reward to risk ratio of Y = 0.0741666

Reward to risk ratio of Y = 7.42%

Reward to risk ratio of Z = (0.093 - 0.056) / 0.7

Reward to risk ratio of Z = 0.037 / 0.7

Reward to risk ratio of Z = 0.0528571

Reward to risk ratio of Z = 5.29%

Security market line (SML) reward-to-risk ratio is the market risk premium itself which is 6.6%.

Stock Y has a reward-to-risk ratio that is higher than the market risk premium, it is currently under-valued in the market. Similarly, since stock Z has a reward-to-risk ratio that is lower than the market risk premium, it is currently over-valued in the market.

8 0
2 years ago
[The following information applies to the questions displayed below.] Tracy Company, a manufacturer of air conditioners, sold 19
Juli2301 [7.4K]

Answer:

November 17, 2021

Merchandise : air conditioners $45,600 (debit)

Accounts Payable $45,600 (credit)

November 26, 2021

Accounts Payable $45,600 (credit)

Discount Received $1,824 (credit)

Cash $43,776 (credit)

December 15, 2021

Accounts Payable $45,600 (credit)

Cash $45,600 (credit)

Explanation:

November 17, 2021

Merchandise : air conditioners $45,600 (debit)

Accounts Payable $45,600 (credit)

Recognize the Merchandise and Accounts payable at the Purchase Price less trade discount. 190 units × $300 × 80% = $45,600

November 26, 2021

Accounts Payable $45,600 (credit)

Discount Received $1,824 (credit)

Cash $43,776 (credit)

Payment is made within the discount period of 10 days and thus Thomas Company is eligible for a cash discount of 4%. Thomas Company will pay the amount owing less the 4% cash discount. $45,600 × 96% = $43,776.

December 15, 2021

Accounts Payable $45,600 (credit)

Cash $45,600 (credit)

Payment is made out of the discount period of 10 days and thus Thomas Company is  not eligible for the cash discount. Thomas Company will pay the full amount owing of $45,600.

3 0
3 years ago
The main difference between marketing research and a marketing information system is that the MIS is an information-gathering pr
Annette [7]

Answer:

False

Explanation:

Marketing research is a term that is used to refer to the process of systematically designing, collecting, interpreting, and reporting information. It is used to help marketers solve specific  marketing problems, and it is also used to take advantage of market opportunities. Marketing research is used to gather information which are not currently available to the decision makers.

A marketing information system (MIS) refers to a system in which marketing data is formally gathered, stored, analysed and distributed to managers in accordance with their informational needs on a regular basis. A management information system is systematically designed to support marketing decision making.

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At the beginning of Year 1, a company reported a balance in common stock of $166,000 and a balance in retained earnings of $66,0
Vinil7 [7]

Answer:

Explanation:

1.

Shareholders equity = Common stock + Retained earnings

Beg. balance = Common stock+Retained earnings = 166,000 + 66,000 = 232,000

Statement of shareholder's equity

Beg balance 232,000

Issuance of common stock  56,000

Add: Net Income 46,000

Less: Dividends 11,600

End balance 322,400

Balance sheet

There is not information for preparation of balance sheet but following is the layout:

Assets:

Cash

Supplies

Prepaid rent

Land

Liabilities:

Accounts payable

Salaries

Utilities

Notes payable

Stockholder's equity:

Common stock 222,000 [166,000+56,000]

Retained earnings 112,000 [66,000+46,000]

Total 334,000

6 0
2 years ago
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