Elliot Karl is a 35-year old bank executive who has just inherit a large amount of money. Having spent several years in the bank’s investment department, he is well aware of the concept of duration and decides to apply it to his bond portfolio. In particular, he intends to use $1 million of his inheritance to purchase four US Treasury bonds:
1) An 8.5%, 13-year bond that is priced at $1,045 to yield 7.47%.
2) A 7.875%, 15-year bond that is priced at $1,020 to yield 7.60%.
3) A 20-year zero-coupon stripped treasury that is priced at 202 to yield 8.22%.
4) A 24-year, 7.5% bond that is priced at $955 to yield 7.90%.
a. Find the duration and the modified duration of each bond
b. Find the duration of the whole bond portfolio if Elliot puts $250,000 into each of the four U.S. Treasury bonds.
c. Find the duration of the portfolio if Elliot puts $360,000 each into bonds 1 and 3 and $140,000 each into bonds 2 and 4.
d. Which portfolio in b or c question should he select if he thinks rates are about to head up and he wants to avoid as much price volatility as possible? Explain. From which portfolio does he make more in annual interest income? Which portfolio would you recommend, and why?
Richmond baking School teaches students how to become a good cake designers. The following relates to the income and costs analysis for the school for 2017Fees chargedSen...Jul 21 2021
Sales mix and break-even salesData related to the expected sales of laptops and tablets for Tech Products Inc. for the current year, which is typical of recent years, are...May 12 2021
Question 11 Not yet answered A manager wishes to build a control chart for a process. A total of five (05) samples are collected with four (04) observations within each s...Apr 29 2021
Ross Whiteâ€™s machine shop uses 2,500 brackets during the course of a year, and this usage is relatively constant throughout the year. These brackets are purchased from...Aug 05 2020
On June 30, 2016, Singleton Computers issued 8% stated rate bonds with a face amount of $100 million. The bonds mature on June 30, 2031 (15 years). The market rate of int...May 23 2020
The age structure diagrams for two hypothetical populations are shown below. Describe the growth rate of each population and discuss the current and future social and eco...Jun 08 2021
You are the Chairperson of the Federal Reserve, the date is June 2008 and a recession is ahead. Using the monetary tool(s) of your choice what would you do? You need to g...May 27 2020
Opportunity to perform is influenced by both the work environment and trainee motivation. True False12.A disadvantage of distance learning is the high travel costs...Dec 10 2019
What is the charge on iron (Fe) in each of the following compounds? For compounds with oxygen, remember what the charge on oxygen must be in an ionic compound.a. Fe3P2b. ...May 16 2021
In your own words, explain what is meant by a top-side adjusting journal entry. If you were auditing Waste Management, what type of documentary evidence would you require...May 14 2021