A fixed-income portfolio manager sets a minimum acceptable rate of return on the bond portfolio at 4.4% per year over the next 5 years. The portfolio is currently worth $10 million. One year later interest rates are at 5.4%. What is the portfolio value trigger point at this time that would require the manager to immunize the portfolio? Multiple Choice $12.402.307 $10,049,398 $9.534,533 $10,440,000
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- Consider the following bond portfolio: Coupon Bond Value Maturity Yield A $300 million 3 years 0% 10% В 300 4 6. 10 400 8 10 a) What is the bond portfolio's duration? b) Calculate the capital loss on this portfolio if the yield increases from 10 to 12 percent. c) Suppose the portfolio is to be immunized over an investment horizon of approximately 5.19 years. Determine the market value of the immunized portfolio at the end of 5.19 years. 4.Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $70,000 or $200,000 with equal probabilities of .5. The alternative risk-free investment in T-bills pays 6% per year.a. If you require a risk premium of 8%, how much will you be willing to pay for the portfolio?b. Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio?c. Now suppose that you require a risk premium of 12%. What is the price that you will be willing to pay?d. Comparing your answers to (a) and (c), what do you conclude about the relationship between the required risk premium on a portfolio and the price at which the portfolio will sell?Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $150,000 or $290,000 with equal probabilities of 0.5. The alternative risk-free investment in T-bills pays 3% per year. Required: a. If you require a risk premium of 7%, how much will you be willing to pay for the portfolio? b. Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? c. Now suppose that you require a risk premium of 12%. What price are you willing to pay? Complete this question by entering your answers in the tabs below. Required A Required B Required C If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? Note: Do not round your intermediate calculations. Round your answer to the nearest whole dollar amount. Price Required A Required B >
- You are a provider of portfolio insurance and are establishing a four-year program. The portfolio you manage is currently worth $70 million, and you promise to provide a minimum return of 0%. The equity portfolio has a standard deviation of 25% per year, and T-bills pay 6.2% per year. Assume that the portfolio pays no dividends. Required: a-1. How much of the portfolio should be sold and placed in bills? (Input the value as a positive value. Do not round intermediate calculations and round your final percentage answer to 2 decimal places.) a-2. How much of the portfolio should be sold and placed in equity? (Input the value as a positive value. Do not round intermediate calculations and round your final percentage answer to 2 decimal places.) b-1. Calculate the put delta and the amount held in bills if the stock portfolio falls by 3% on the first day of trading, before the hedge is in place? (Input the value as a positive value. Do not round intermediate calculations. Round your…You are a provider of portfolio insurance and are establishing a four-year program. The portfolio you manage is currently worth $60 million, and you promise to provide a minimum return of 0%. The equity portfolio has a standard deviation of 25% per year, and T-bills pay 5.2% per year. Assume that the portfolio pays no dividends. Required: a-1. How much of the portfolio should be sold and placed in bills? (Input the value as a positive value. Do not round intermediate calculations and round your final percentage answer to 2 decimal places.) Portfolio in bills a-2. How much of the portfolio should be sold and placed in equity? (Input the value as a positive value. Do not round intermediate calculations and round your final percentage answer to 2 decimal places.) Portfolio in equityImagine you are a provider of portfolio insurance. You are establishing a four-year program. The portfolio you manage is currently worth $210 million, and you promise to provide a minimum return of 0%. The equity portfolio has a standard deviation of 25% per year, and T-bills pay 7% per year. Assume for simplicity that the portfolio pays no dividends (or that all dividends are reinvested). a-1. What percentage of the portfolio should be placed in bills? (Input the value as a positive value. Round your answer to 2 decimal places.) Portfolio in bills % a-2. What percentage of the portfolio should be placed in equity? (Input the value as a positive value. Round your answer to 2 decimal places.) Portfolio in equity %
- What makes for a good investment? Use the approximate yield formula or a financial calculator to rank the following investments according to their expected returns. Buy a stock for $30 a share, hold it for three years, and then sell it for $60 a share (the stock pays annual dividends of $2 a share). Buy a security for $40, hold it for two years, and then sell it for $100 (current income on this security is zero). Buy a one-year, 5 percent note for $1,000 (assume that the note has a $1,000 par value and that it will be held to maturity).Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $95,000 or $360,000 with equal probabilities of 0.5. The alternative risk-free investment in T-bills pays 6% per year. a. If you require a risk premium of 9%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest whole dollar amount.) Price b. Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? (Round your answer to the nearest whole number.) Rate of return % c. Now suppose that you require a risk premium of 13%. What price are you willing to pay? (Round your answer to the nearest whole dollar amount.) PriceYou Answered orrect Answer A company is promising a coupon payment of $46 in 2.03 years. A risk free government bond of the same maturity is yielding 1.66% per year. The credit spread for the promised payment by the company is 1.24% per year. Both the yield and the spread are stated on a continuously compounded basis. What is the present value of the expected loss on the promised payment? 1.11 margin of error +/-50
- Suppose the term structure is set according to pure expectations and the maturity preference theory. To be specific, investors require no compensation for holding investments with a maturity of one year, but they demand a liquidity premium for holding longer term investments. Given the information below, what are the expected one year rates in one year and in two years? Assume annual interest rates. Spot Liquidity premium rate (basis points) 2.65% 0 3.24% 20 3 3.98% 30Consider a risky portfolio. The end - of - year cash flow derived from the portfolio will be either $70,000 or $200,000 with equal probabilities of 0.5. The alternative risk - free investment in T - bills pays 2% per year. Required: If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? Now suppose that you require a risk premium of 12 % . What price are you willing to pay?Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $150,000 or $290,000 with equal probabilities of .5. The alternative risk-free investment in T-bills pays 6% per year. a. If you require a risk premium of 7%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest whole dollar amount.) b. Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? (Round your answer to the nearest whole number.) c. Now suppose that you require a risk premium of 12%. What is the price that you will be willing to pay? (Round your answer to the nearest whole dollar amount.)
