Required: A pension plan is obligated to make disbursements of $2.7 million, $3.7 million, and $2.7 million at the end of each of the next three years, respectively. The annual interest rate is 10%. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one-year zero-coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Investment in one-year zero-coupon bonds Investment in perpetuity Portfolio % %
Q: Felice bought a duplex apartment at a cost of $210,000. Her mortgage payments on the property are…
A: Monthly rent refers to an amount that is paid every month by the tenant to the owner in return for…
Q: Lugget Corp. has one bond issue outstanding with an annual coupon of 4.4%, a face value of $1,000…
A: Pre tax cost of debt refers to the Yield to Maturity (YTM) of the bond. This can be calculated by…
Q: We are examining a new project. We expect to sell 6, 100 units per year at $75 net cash flow apiece…
A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…
Q: Fill in the missing values in the table. (Round answers to 2 decimal places, e.g. 1.55. Do not leave…
A: An indication of the systematic risk for an investment or the risk factor that influences the whole…
Q: You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of…
A: WACC is the rate that a business has to pay to each of its security holders in order to fund its…
Q: Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral…
A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…
Q: Determination of a suitable strategy for a company begins with identifying opportunities and risks…
A: (a) The Economic Environment: The economic environment refers to the state of the economy in a…
Q: 4. Using the following returns, calculate the arithmetic average returns, the variances, and the…
A: ReturnsYearXY10.130.2420.310.4530.2-0.114-0.21-0.2550.220.53Average=AVERAGE(B3:B7)=AVERAGE(C3:C7)Var…
Q: A plano manufacturer is considering a capital expenditure project involving purchasing and…
A: Annual cash flows are the cash flow from business when the all expenses are paid and tax advantage…
Q: A single bank is considering two options: First, it can make a $200,000 mortgage loan for a customer…
A: Let's calculate the weighted risk for each type of loan and then determine the overall expected…
Q: Hanover Tech is currently an all equity firm that has 200,000 shares of stock outstanding with a…
A: Value of EquityThe value of equity refers to the worth of ownership in a company, representing the…
Q: Consider the following information: State of Probability of Economy State of Economy Boom Good Rate…
A: Portfolio return is calculated by weighted average return of the stocks.Portfolio Return Rp = Wa*Ra…
Q: der the following information: State of Economy Recession Normal Boom Probability of State of…
A: Expected return of a stock is the sum of product of returns with respective probabilities. where as…
Q: The Carter Corporation, a firm in the 25% marginal tax bracket, with a 15% required rate of return…
A: Net Present Value is calculated as the difference between the present value of cash inflow and cash…
Q: Date 2022-02-05 2022-02-06 2022-02-07 2022-02-08 2022-02-09 $ es es es 107.52 $ 116.51 $ 109.41 $…
A: Arithmetic mean return = sum of the returns of AAPL for 5 years/ number of years i.e. 5
Q: You read in The Wall Street Journal that 30-day T-bills are currently yielding 4.0%. Your…
A: Fisher gave an equation where the risk-free rate or the nominal rate can be converted into real…
Q: Bolster Foods' (BF) balance sheet shows a total of $21 million long-term debt with a coupon rate of…
A: Weighted average cost of capital refers to the cost associated with the capital invested in the…
Q: Max and Wendy have a MAGI of $55,000. They are married and file jointly. Max has a student loan…
A: The question is asking us to calculate the amount of student loan interest that Max and Wendy can…
Q: (IRR calculation) Determine the IRR on the following projects: a. An initial outlay of $12,000…
A: The internal rate of return is the discount rate at which the net present value of a project is…
Q: A 25-year, $1,000 par value bond has a 7.5% annual payment coupon. The bond currently sells for…
A: Bonds are debt instruments that are issued by financial institutions to raise debt capital from the…
Q: ere are some important figures from the budget of Nashville Nougats, Incorporated, for the second…
A: Cash budget is prepared to determine estimated cash receipts and payments for a specified future…
Q: 8. Analysis of a replacement project At times firms will need to decide if they want to continue to…
A: Cost of new equipment$6,00,000Estimated life 6New equipment depreciation$1,00,000Old equipment…
Q: Letang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt…
A: The amount by which a firm would increase in value due to taking up an investment is known as the…
Q: What is the project NPV?
A: Net present value is determined by deducting the initial investment from the current value of cash…
Q: elect the preferred alternative. Choose the correct answer below. A. Alternative A OB. Alternative C…
A: Investment Alternatives AnalysisObjectiveTo evaluate and select the most attractive investment…
Q: Home Builder Supply, a retailer in the home improvement industry, currently operates seven retail…
A: The decision to build a new retail store involves careful consideration of various costs and…
Q: Farmington Company can borrow at 6.9 percent. The company currently has no debt and the cost o…
A: The value of a company is the sum of all its marketable assets. The Modigliani-Miller proportion…
Q: Amalgamated Industrial is growing quickly. Dividends are expected to grow at a 10 percent rate for…
A: When dividends grow at a constant rate g, the formula for the price of a stock using the Dividend…
Q: A project is expected to generate annual revenues of $118,500, with variable costs of $75,100, and…
A: Annual revenue = $118,500Variable cost = $75,100Fixed cost = $15,600Depreciation = $3,900Tax rate =…
Q: You observe the yields of the following Treasury securities (all yields are shown on a…
A: In the realm of finance, a profound comprehension of spot rates is indispensable for bond pricing…
Q: debt principal is reduced to 50% of the original principal, what is the internal rate of return…
A: We are given the following data -Purchase Price$250,000,000Debt Component80%Time period7…
Q: Lucky Larry wins $5,000,000 in a state lottery. The standard way in which the state pays such…
A: The PV of a payment series refers to the overall value of its cash flows at present assuming that…
Q: A firm is trying to decide between two types of trucks, one a conventional gasoline vehicle and the…
A: The problem requires the identification of mileage ( the number of miles) that will make both…
Q: A mutual fund has 350 shares of General Electric, currently trading at $24, and 350 shares of…
A: Net Asset Value (NAV) is a key financial metric used in the context of investment funds, including…
Q: What minimum amount of money earning 8.5% compounded semiannually will sustain withdrawals of $2,700…
A: Present value is the equivalent value of money today that is to be withdrawn based on the time value…
Q: ompute the stock price of a firm that pays a dividend of €1.5 per share, its expected earnings are…
A: The problem case focuses on calculating the current stock price for the firm. The firm pays…
Q: You want to buy a $24,000.00 car. You can make a 10% down payment, and will finance the balance with…
A: Annuity refers to a series of cash flows that occurs on a periodic basis. Here the loan will be paid…
Q: The common stock currently sells for $64 per share and has a beta of 1.20, the preferred stock has a…
A: WACC is the weighted average cost of capital and is weighted cost of equity, weighted cost of debt…
Q: Save An You are trying to estimate the share price for Heavyweight Inc. Heavyweight currently has 40…
A: Share price refers to the price at which the shares are bought or sold by the shareholders in the…
Q: Shelly Franks is planning for her retirement, so she is setting up a payout annuity with her bank.…
A: Note: Since you have posted a question with multiple sub-parts, we will solve the first three…
Q: As the financial consultant, what recommendation on the financial viability of the project would…
A: Project OverviewTrytonic Ltd is considering a new project for the manufacture of pocket video games.…
Q: Project L requires an initial outlay at t= 0 of $61,215, its expected cash inflows are $11,000 per…
A: IRR refers to the internal rate of return.It is an important tool in capital budgeting. IRR is the…
Q: Find the value of a retirement savings account paying an APR of 5.8% after 45 years (contributions…
A: We need to use future value of ordinary annuity formula to calculate value of of your retirement…
Q: Lasting Impressions (LI) Company is a medium-sized commercial printer of promotional advertising…
A:
Q: Fill in the missing values in the table. (Round answers to 2 decimal places, e.g. 1.55. Do not leave…
A: The statistical variables that highlight the value of uncertainties linked to an investment are the…
Q: Matt is saving to buy a new motorcycle. If he deposits $70 at the end of each month in an account…
A: Here,ParticularsValuesMonthly deposits (PMT) $ 70.00Interest rate5.50%Number of compounding…
Q: Problem 9-11 (Algo) Future value [LO9-2] If you invest $10,000 per period for the following number…
A: The term "future value" typically refers to the value of an investment or amount of money at a…
Q: If you put up $31,000 today in exchange for a 5.25 percent, 15-year annuity, what will the annual…
A: Annuity refers to a series of cash flows occurring on a periodic basis. Here the amount of $31,0000…
Q: Chapter 12 Practice Problems 1. Suppose a stock had an initial price of $77 per share, paid a…
A: Percentage total return refers to the rate of return that is being earned by the investors over the…
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
- You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are going to closely resemble level perpetuities of $1.4 million per year. The interest rate is 8%. You plan to fully fund the obligation using 5-year and 20-year maturity zero-coupon bonds.Required: a. How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized position?A pension plan is obligated to make disbursements of $1.9 million, $2.9 million, and $1.9 million at the end of each of the next three years, respectively. The annual interest rate is 11%. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one - year zero - coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan?You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are going to closely resemble level perpetuities of $1.8 million per year. The interest rate is 10%. You plan to fully fund the obligation using 5-year and 20-year maturity zero-coupon bonds. Required: a. How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized position? (Do not round intermediate calculations. Enter your answers in millions. Round your answers to 1 decimal place.) Five-year Twenty-year Market Value million million b. What must be the face value of each of the two zeros to fund the plan? (Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.) Five-year Twenty-year Face Value million million
- You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are going to closely resemble level perpetuities of $1.8 million per year. The interest rate is 10%. You plan to fully fund the obligation using 5-year and 20-year maturity zero-coupon bonds.Required: a. How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized position? (Do not round intermediate calculations. Enter your answers in millions. Round your answers to 1 decimal place.) Market Value Five-Year ___ Million Twenty-Five Year ___ Million b. What must be the face value of each of the two zeros to fund the plan? (Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.) Face Value Five-Year ___ Million Twenty-Five Year ___ MillionYou manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are going to closely resemble level perpetuities of $2.3 million per year. The interest rate is 10%. You plan to fully fund the obligation using 5-year and 20-year maturity zero-coupon bonds. Required: a. How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized position?. Five-year Twenty-year Market Value Five-year Twenty-year million million b. What must be the face value of each of the two zeros to fund the plan? Face Value million millionYou manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are going to closely resemble level perpetuities of $2.1 million per year. The interest rate is 10%. You plan to fully fund the obligation using 5-year and 20-year maturity zero-coupon bonds.Required: a. How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized position? (Do not round intermediate calculations. Enter your answers in millions. Round your answers to 1 decimal place.) Market Value Five year: Twenty year: b. What must be the face value of each of the two zeros to fund the plan? (Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.) Face Value Five year: Twenty year:
- You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are going to closely resemble level perpetuities of $2.0 million per year. The interest rate is 10%. You plan to fully fund the obligation using 5-year and 20-year maturity zero-coupon bonds. Required: a. How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized position? (Do not round intermediate calculations. Enter your answers in millions. Round your answers to 1 decimal place.) Five-year Twenty-year Market Value Five-year Twenty-year million million b. What must be the face value of each of the two zeros to fund the plan? (Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.) Face Value million millionA pension fund has a liability of £65000 to be paid precisely in 4 years time. It wants to Reddington immunise this liability with P 3-year zero coupon bonds and Q 5-year zero coupon bonds, where P and Q are to be determined. Interest is compounded continuously with rate 2%. What is the present value, effective duration and convexity of the liability?Leaf Products may issue a 10-year maturity fixed-income security, which might include a sinking fund provision and either refunding or call protection.a. Describe a sinking fund provision.b. Explain the impact of a sinking fund provision on:i. The expected average life of the proposed security.ii. Total principal and interest payments over the life of the proposed security.c. From the investor’s point of view, explain the rationale for demanding a sinking fund provision.
- Pension funds pay lifetime annuities to recipients. If a firm will remain in business indefinitely, the pension obligation will resemble a perpetuity. Suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $1.9 million per year to beneficiaries. The yield to maturity on all bonds is 19.0%. Required: a. If the duration of 5-year-maturity bonds with coupon rates of 11.8% (paid annually) is four years and the duration of 20-year-maturity bonds with coupon rates of 7% (paid annually) is 11 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. b. What will be the par value of your holdings in the 20-year coupon bond? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. a. 5 year bond a. 20 year bond b. Par…Pension funds pay lifetime annuities to recipients. If a firm remains in business indefinitely, the pension obligation will resemble a perpetuity. Suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $3.0 million per year to beneficiaries. The yield to maturity on all bonds is 20%. Required: a. If the duration of 5-year maturity bonds with coupon rates of 16% (paid annually) is 3.7 years and the duration of 20-year maturity bonds with coupon rates of 7% (paid annually) is 6.5 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation? (Do not round intermediate calculations. Enter your answers in millions rounded to 5 decimal places.) > Answer is complete but not entirely correct. Holdings 5-year bond 20-year bond $ 1.60000 million $ 22.20000 million b. What will be the par value of your holdings in the 20-year coupon bond? (Enter your answer in dollars not in…Pension funds pay lifetime annuities to recipients. If a firm will remain in business indefinitely, the pension obligation will resemble a perpetuity. Suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $1.3 million per year to beneficiaries. The yield to maturity on all bonds is 14.0%. Required: a. If the duration of 5-year-maturity bonds with coupon rates of 10.0 % (paid annually) is four years and the duration of 20-year-maturity bonds with coupon rates of 5% (paid annually) is 11 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. b. What will be the par value of your holdings in the 20-year coupon bond? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. a. 5 year bond a. 20 year bond b. Par…