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MLK Bank has an asset portfolio that consists of $180 million of 15-year, 10.5 percent annual coupon, $1,000 bonds that sell at par.
a-1. What will be the bonds’ new prices if market yields change immediately by ± 0.10 percent? I do not need this answered.
a-2. What will be the new prices if market yields change immediately by ± 2.00 percent? I do not need this answered.
b-1. The duration of these bonds is 8.1702 years. What are the predicted
b-2. What is the amount of error between the duration prediction and the actual market values?
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- Suppose there is a large probability that L will default on its debt. For the purpose of this example, assume that the value of Ls operations is 4 million (the value of its debt plus equity). Assume also that its debt consists of 1-year, zero coupon bonds with a face value of 2 million. Finally, assume that Ls volatility, , is 0.60 and that the risk-free rate rRF is 6%.Assume the following facts: a 10-yr bond, callable at 980 after 2 yrs, face value of 1000, priced to sell at 11% required rate of return, and pays a coupon of 10% (paid semiannually). The bond is valued today at 940.25. The problem with this valuation is that A. it assumes all cash flows are known with certainty B. it assumes all cash flows are not known with certainty C. it does not assume any reinvestment rate D. the bond should be selling at a premiumMLK Bank has an asset portfolio that consists of $100 million of 30-year, 8 percent annual coupon, $1,000 bonds that sell at par. (LG 3-4, LG 3-6) a. What will be the bonds’ new prices if market yields change immediately by ± 0.10 percent? What will be the new prices if market yields change immediately by ± 2.00 percent? b. The duration of these bonds is 12.1608 years. What are the predicted bond prices in each of the four cases using the duration rule? What is the amount of error between the duration prediction and the actual market values? in excel please
- An insurance company must make payments to a customer of $10 million in one year and $4 million in five years. The yield curve is flat at 10%.a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase?b. What must be the face value and market value of that zero-coupon bond?MLK Bank has an asset portfolio that consists of $90 million of 30-year, 9 percent annual coupon, $1,000 bonds that sell at par. a-1. What will be the bonds’ new prices if market yields change immediately by ± 0.10 percent?a-2. What will be the new prices if market yields change immediately by ± 2.00 percent?b-1. The duration of these bonds is 11.1983 years. What are the predicted bond prices in each of the four cases using the duration rule?b-2. What is the amount of error between the duration prediction and the actual market values?An insurance company must make payments to a customer of $10 million in one year and $5 million in five years. The yield curve is flat at 10%. Required: a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. What must be the face value and market value of that zero-coupon bond? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. a. Maturity of zero coupon bond b. Face value b. Market value years million million
- ABC Co. has a large amount of variable rate financing due in one year. The management is concerned about the possibility of increases in short-term rates. Which would be an effective way of hedging this risk?a. Buy Treasury notes in the futures market.b. Sell Treasury notes in the futures market.c. Buy an option to purchase Treasury bonds.d. Sell an option to purchase Treasury bondsAn insurance company must make payments to a customer of $9 million in one year and $6 million in six years. The yield curve is flat at 7%. Required: a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. What must be the face value and market value of that zero-coupon bond? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. Answer is complete but not entirely correct. 12,410,000.00 years x million x million a. Maturity of zero coupon bond b. Face value b. Market value $ 14,810,000.00 12,410,000.00 $ 46 MLK Bank has an asset portfolio that consists of $100 million of 30-year, 8 percent annual coupon, $1,000 bonds that sell at par. a-1. What will be the bonds' new prices if market yields change immediately by ± 0.10 percent? a-2. What will be the new prices if market yields change immediately by ± 2.00 percent? b-1. The duration of these bonds is 12.1608 years. What are the predicted bond prices in each of the four cases using the duration rule? b-2. What is the amount of error between the duration prediction and the actual market values? Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required B1 Required B2 What will be the bonds' new prices if market yields change immediately by ± 0.10 percent? (Do not round intermediate calculations. Enter all answers as positive numbers. Round your answers to 2 decimal places. (e.g., 32.16)) At + 0.10% At - 0.10% Bonds' New Price $ 988.85 1,011.36 < Required A1 Required A2
- 1. A corporate bond has a nominal or observed yield of 9.8%. Your sister, the famous economist, has given you the following estimates: Inflation-risk premium = 3.00% Default-risk premium = 2.10% Maturity premium = 1.90% Liquidity premium = 0.50% On the basis of these data, what is the best estimate of the real risk-free rate of return? 2.Black Lung Mining is considering opening a new coal mine. Black Lung’s beta is 0.8. Black Lung paid $15 million for the property six years ago. A recently completed feasibility study estimated that new machinery and equipment at the mine will cost $33 million, working capital requirements will increase by $500,000 immediately, and employee-training expenses will be $125,000. The feasibility study cost $1,000,000. What amount should Black Lung use as its initial outlay in the capital budgeting analysis? 3. Management expects a project to generate EBIT of $600,000 per year for 4 years. Depreciation expense is expected to be $225,000 per year and the…MLK Bank has an asset portfolio that consists of $100 million of 30-year, 10 percent annual coupon, $1,000 bonds that sell at par. a-1. What will be the bonds' new prices if market yields change immediately by ± 0.10 percent? a-2. What will be the new prices if market yields change immediately by ± 2.00 percent? b-1. The duration of these bonds is 10.3696 years. What are the predicted bond prices in each of the four cases using the duration rule? b-2. What is the amount of error between the duration prediction and the actual market values? Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required B1 Required 82 What is the amount of error between the duration prediction and the actual market values? (Do not round intermediate calculations. Enter all answers as positive numbers. Round your answers to 2 decimal places. (e.g., 32.16)) Amount of Error At+ 0.10% Al-0.10% At+2.0% Al-2.0%Suppose the rate of return on a 10-year T-bond is 5.30%, the expected average rate of inflation over the next 10 years is 1.50%, the MRP on a 10-year T-bond is 0.90%, no MRP is required on a TIPS, and no liquidity premium is required on any Treasury security. Given this information, what should the yield be on a 10-year TIPS? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average. a. 2.90% b. 3.80% c. 4.33% d. 4.40% e. 2.86%