2.Consider a portfolio of 3 bond A and 2 Annuity B, the yield rate is i-5% for A and B. Bond A: F=C=$1000, 4-year with annual coupon at 4%, Annuity B: A one-year deferred annuity-immediate with 3 level payments 50. (1) What is the PV of this portfolio? (2) Find the Macaulay Duration D and DB (3) Find the Modified Duration MDA and MDB (4) Find the Modified Duration for the portfolio. (5) Use modified approximation to estimate the change in PV when both bond yield rate rise by 0.2%

2.Consider a portfolio of 3 bond A and 2 Annuity B, the yield rate is i-5% for A and B. Bond A: F=C=$1000, 4-year with annual coupon at 4%, Annuity B: A one-year deferred annuity-immediate with 3 level payments 50. (1) What is the PV of this portfolio? (2) Find the Macaulay Duration D and DB (3) Find the Modified Duration MDA and MDB (4) Find the Modified Duration for the portfolio. (5) Use modified approximation to estimate the change in PV when both bond yield rate rise by 0.2%

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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8. Assume the risk-free rate is 6.7% and the expected return on the market portfolio is 7.8%. Use the capital asset pricing model (CAPM) to find the required return for each of the securities in the table here, 7. Review On Click the icon to see the Worked Solution. The required return for investment A is %. (Round to one decimal place.) The required return for investment B is %. (Round to one decimal place.) The required return for investment C is %. (Round to one decimal place.) The required return for investment D is %. (Round to one decimal place.) The required return for investment E is %. (Round to one decimal place.) 7: Data Table (Click on the icon here in order to copy its contents of the data table below into a spreadsheet.) Security Beta A 1.34 в 0.93 0.13 0.96 E 0.67
Assume the pure expectation theory holds: If the return on 6 years maturity treasury bill (TB) is 8%, the return on 1-year maturity TB is 6%, the return on a 2 years maturity (TB) is 7%, X is the return on a 3-year maturity bond. a. Calculate X, the forward rate, the return on a 3-year maturity bond, 3 years from today. b. Graph the yield curve c. Based on the yield curve you just derived, what are your expectations of the future performance of the economy?
(c)) Discuss the following graphic, which shows the relationship between expected return and portfolio weights. The portfolio is comprised of a debt security D and an equity security E. What would the portfolio strategy be when Wp = 2 and ba WE = -1? 38 (33) -0.5 Expected Return 13% 8% Debt Fund 0 (ebenso) esenicut adol leu@ ledol (loorba (ognerloxel) Ismet tametnl Equity Fund 1.0 0 OC) becida nieu to 2.0 w (stocks) AB -1.0 68 XO.YOUTS RO w (bonds)=1-w (stocks) 15 V10 anollesup Figure 7.3 Portfolio expected return as a function of investment proportions la 21101TO
Suppose that an FI holds two loans with the following characteristics. Annual Spread Between Loss to FI Expected Loan Rate and FI=s Annual Given Default Loan Xi Cost of Funds Fees Default Frequency 1 .6 4.5% 2.5% 30% 3% ρ12 = -.4 2 .4 3.5% 2% 20% 5% Calculate of the return and risk on the two-asset portfolio using KMV Portfolio Manager.
Given a real rate of interest of 2%, an expected inflation premium of 3%, and risk premiums for investments A and B of 4% and 6%, respectively, find the following. The risk-free rate of return, rf The required returns for investments A and B
The return on loan 1 is R1 = 6.25%, the risk on loan 2 is \sigma 2 = 1.8233 %, and the return of the portfolio is Rp = 4.555 % . Calculate of the loss given default on loans 1 and 2, the proportions of loans 1 and 2 in the portfolio, and the risk of the portfolio, \sigma p, using Moody's Analytics Portfolio Manager.Suppose that an Fl holds two loans with the following characteristics.
Give typing answer with explanation and conclusion Consider a coupon bond with coupon payment=4.25, M=100, and n=2. Suppose ?1 = 4% and ?2 = 4.24%. Consider a forward contract for the delivery of the coupon bond in one period from today. Calculate the forward price using the following two approaches: 1) use the forward rate to price the forward contract; 2) use the cost of carry approach: spot-forward parity adjusted for the coupons.
Given a real rate of interest of 3.4%, an expected inflation premium of 3.6%, and risk premiums for investments A and B of 4.7% and 6.8% respectively, find the following: a. The risk-free rate of return, rf b. The required returns for investments A and B a. The risk-free rate of return is %. (Round to one decimal place.)
Consider an investment portfolio consisting of two zero-coupon bonds: . a 4-year zero-coupon bond with maturity value 4,000 and a yield of 4% • a 7-year zero-coupon bond with maturity value 7,000 and a yield of 7% What is the modified duration of this 2-bond portfolio? (All of the interest rates in this problem are annual effective rates.) A) 5.31 B) 5.36 C) 5.46 D) 5.56 E) 5.91
After recently receiving a bonus, you have decided to add some bonds to your investment portfolio. You have narrowed your choice down to the following bonds (assume semiannual payments): a. Using the PRICE function, calculate the intrinsic value of each bond. Is either bond currently undervalued? How much accrued interest would you have to pay for each bond? b. Using the YIELD function, calculate the yield to maturity of each bond using the current market prices. c. Calculate the duration and modified duration of each bond.d. Which bond would you rather own if you expect market rates to fall by 2% across the maturity spectrum? What if rates will rise by 2%? Why?
Given a real rate of interest of 2%, an expected inflation premium of 3%, and risk premiums for investments A and B of 4% and 6%, respectively, find the following. The risk-free rate of return, rf
Use the following information to answer Questions 5 and 6 You are given the following binomial interest model. Compounding is annual. t = 0 t = 1 i1,H = 3.6% io = 2% 11,L = 2.8% 5. Bond F is a 2-year 4% annual coupon bond with a face value of $100, callable at time t = 1. Find the price of the call option embedded in Bond F. 6. Bond G is 2-year 2.5% annual coupon bond with a face value of $100, putable at times t = 0, and t = 1. Find the price of the put option embedded in Bond G.

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