Question 20 A pension fund has an average duration of its liabilities equal to 15 years. The fund is looking at 8- year maturity zero-coupon bonds and a perpetual bond with yield to maturity of 4% 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? O 61 percent O47 percent O 39 percent O 53 percent

Question 20 A pension fund has an average duration of its liabilities equal to 15 years. The fund is looking at 8- year maturity zero-coupon bonds and a perpetual bond with yield to maturity of 4% 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? O 61 percent O47 percent O 39 percent O 53 percent

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question 9 Mr. Dover is purchasing a government strip bond with a face value of $5,000 and 30 years until maturity If the price of the bond is $924.06, what is its nominal yield? Note: Please make sure your answer are in porcentage form and are Accurate to 3 decimal places.
Question 8 You owe $40,000 in 2 years' time. Annualised yields are 7% at all horizons. There is a 1-year zero-coupon bond, and a 5-year annuity paying $4 per year. To the nearest cent, how much should you invest in the 1-year bond and 5-year annuity to immunise yourself against interest rate risk?
#7
26 Required: A hedge fund charges an incentive fee of 15% of any investment returns above the T-bill rate, which currently is 2.0% but is subject to a high water mark, In the first year, the fund suffers a loss of 10,5%, What rate of return must it earn in the second year to be eligible for an incentive fee? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.) Rate of return
Problem 7-8 A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 4%. The characteristics of the risky funds are as follows: Stock fund (S) Bond fund (B) Expected Return 23% 14 Standard Deviation The correlation between the fund returns is 0.12. Sharpe ratio 29% 17 What is the Sharpe ratio of the best feasible CAL? (Do not round intermediate calculations. Enter your answer as a decimal rounded to 4 places.) Check my work
INV 1 6f You have decided to invest in three mutual funds: one in equities, one in long corporate and government bonds, and a money market fund invested in T-bills yielding 5%. Your estimate of the relevant parameters for the equities and bond funds are as follows: Expected Return Standard Deviation Equities .15 .30 Bonds .06 .09 The correlation between the fund returns is 0.12. Compare the portfolios in #4 and #5. Is this consistent with what you would expect when adding the T-bill money market fund as essentially the risk-free asset?
Q 20 Calculate the price of a 5.7 percent coupon bond with 22 years left to maturity and a market interest rate of 6.5 percent. (Assume interest payments are semiannual.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.) BOND PRICE_______ Is this a discount or premium bond?multiple choice premium bond discount bond
QUESTION 2 • The following two investment options are viewed under an annual effective interest rate of i. Investment A is a 10-year zero coupon bond which redeems at par-value 250. Investment B is a perpetuity-immediate paying an annual payment starting with 4 and having each successive payment increase by K% from the previous payment. • If the volatility of each investment is 8, then find the value of K. Give your answer as a decimal rounded to two places (i.e. X.XX)...i.e. if your answer was K% = 2.54%, you would answer 2.54. ||
Question 2 Using the spot rates below, find the price of a two-years to maturity risky bond that pays 2% annual coupon and has a z-spread of 30 bps (assuming Spot Curve face value of $100 and annual convention). Year YTM 1 0.50% 3.00% 5 3.10% Selected Answer: D. $99.73 Answers: A. $98.73 O B. $100.73 C. $97.73 D. $99.73
FIGURE 6.14 One-fund theorem. When both borrowing and lending at the risk-free rate are allowed, there is a unique fund F of risky assets that is efficient. All points on the efficient frontier are combinations of F and the risk-free asset. The information concerning the 1-year covariances and mean values of the rates of return on five risky securities (assets) is shown in the table below. Security Covariance V 2.30 93 .62 74 15.1 -23 26 -27 -56 2 56 12.5 93 62 1.40 22 22 56 1.80 .78 -27 78 3.40 -56 14.7 9.02 17.68 4 74 - 23 26 2.60 The mean values in the column labeled F are expressed on a percentage basis, whereas the covariances are expressed in units of (percent)? / 100. For example, the first security has an expected rate of return of 15.1%, or 0.151, and a variance of return of 0.023. And the covariance between security 1 and security 2 is 0.0093, while the covariance between security 1 and security 3 is 0.0062. Assume there is also a risk-free asset with r; = 10%. The one-fund…
What was the Bond Fund's annualized return over the period specified? (Pick the closest answer) Question 1 options: 8% 406 IPO 600 I

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