Business, 18.06.2021 01:00, michellemonchez103

In lecture we defined quasi-modified duration as the extension of the concept of duration to the term structure framework. It is possible to extend the process of immunization to the term structure framework. A portfolio of bonds designed to fund a stream of obligations can be immunized against a parallel shift in the spot rate curve by matching both the present values and the quasi-modified durations of the bonds and the obligations. Consider the following stream of obligations, in dollars, over the next 8 years as shown in the table below below: Year 1 2 3 4 5 6 7 8 100 200 300 400 500 600 700 800 You are given the spot rate curve is as follows: Year Spot 1 7.672 8.273 8.814 9.315 9.756 10.167 10.52 8 10.85 9 11.15 10 11.42 11 11.67 12 11.89 Find a portfolio, consisting of the two bonds below, that has the same present value as the obligation stream and is immunized against an additive shift in the spot rate curve: Bond 1 is a 12-year 6% annual coupon bond Bond 2 is a 5-year 10% annual coupon bond Both bonds have a face value of $100. How many units of Bond 2 should be held in the immunized portfolio?

Answers: 1

Show answers

Other questions on the subject: Business

Business, 21.06.2019 21:00, castiaulii16

The market for corn in country a is highly competitive. at the current market price of $5/bushel there is a shortage of 100,000 bushels of corn in this country. media reports claim that the price of corn will rise drastically in the near future. according to these reports, the neighboring country b had witnessed a similar situation recently. at the same price, the shortage in country b was also 100,000 bushels and eventually the equilibrium price in b went up to $10/bushel. both countries are known to have equal number of corn producers and the market supply of corn is identical at all prices. this, combined with the fact that consumers in the two countries also have similar tastes and preferences, led the media to conclude that the price of corn in country a would soon be as high as $10/bushel. the new equilibrium price turns out to be below $10/bushel, what inferences can be drawn?

Answers: 3

continue

Business, 21.06.2019 23:00, kimmmmmmy333

Assume today is december 31, 2013. barrington industries expects that its 2014 after-tax operating income [ebit(1 â€“ t)] will be $400 million and its 2014 depreciation expense will be $70 million. barrington's 2014 gross capital expenditures are expected to be $120 million and the change in its net operating working capital for 2014 will be $25 million. the firm's free cash flow is expected to grow at a constant rate of 4.5% annually. assume that its free cash flow occurs at the end of each year. the firm's weighted average cost of capital is 8.6%; the market value of the company's debt is $2.15 billion; and the company has 180 million shares of common stock outstanding. the firm has no preferred stock on its balance sheet and has no plans to use it for future capital budgeting projects. using the corporate valuation model, what should be the company's stock price today (december 31, 2013)? round your answer to the nearest cent. do not round intermediate calculations.

Answers: 1

continue

Business, 22.06.2019 03:00, brarob340

Tina is applying for the position of a daycare assistant at a local childcare center. which document should tina send with a résumé to her potential employer? a. educational certificate b. work experience certificate c. cover letter d. follow-up letter

Answers: 1

continue

Business, 22.06.2019 14:30, kaylahill14211

You hear your supervisor tell another supervisor that a fire drill will take place later today when the fire alarm sounds that afternoon you should

Answers: 1

continue

Do you know the correct answer?

In lecture we defined quasi-modified duration as the extension of the concept of duration to the ter...