how all your work. You are a pension fund manager with two investments in your portfolio...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
how all your work. You are a pension fund manager with two investments in your portfolio currently with a total market value of $10 mil. The current market interest rates on both investments are 8%. You have a 10-year zero coupon bond with 6 years to mature currently worth $4 mil. You also own a 4-year 11% annual coupon bond with 5 years to mature worth $6 mil currently with a duration of 4.5 years. If the market interest rates were to increase by 10 basis point tomorrow, what is your total portfolio gains/loss? 2. 1. You have 5000 shares of stock currently priced at $40 per share ready to be sold in January for tax reason. To hedge for downside risk, you want to enter into a collar to save hedging cost. January calls with a strike price of $45 are selling at $2; and January puts with a strike price of $35 are selling at $3. What will be your portfolio value in January (net of the proceeds from the options) if the stock price ends up at (a) $31? (b) $49? (Answer both a and b). how all your work. You are a pension fund manager with two investments in your portfolio currently with a total market value of $10 mil. The current market interest rates on both investments are 8%. You have a 10-year zero coupon bond with 6 years to mature currently worth $4 mil. You also own a 4-year 11% annual coupon bond with 5 years to mature worth $6 mil currently with a duration of 4.5 years. If the market interest rates were to increase by 10 basis point tomorrow, what is your total portfolio gains/loss? 2. 1. You have 5000 shares of stock currently priced at $40 per share ready to be sold in January for tax reason. To hedge for downside risk, you want to enter into a collar to save hedging cost. January calls with a strike price of $45 are selling at $2; and January puts with a strike price of $35 are selling at $3. What will be your portfolio value in January (net of the proceeds from the options) if the stock price ends up at (a) $31? (b) $49? (Answer both a and b).
Expert Answer:
Answer rating: 100% (QA)
1 We must determine the price change of each investment as a result of the rise in market interest rates in order to determine the overall portfolio gain or loss Lets start with bonds having a zero co... View the full answer
Related Book For
Introduction To Derivatives And Risk Management
ISBN: 9781305104969
10th Edition
Authors: Don M. Chance, Robert Brooks
Posted Date:
Students also viewed these finance questions
-
A firm has 100,000 shares of stock outstanding priced at $35 per share. The firm has no debt and does not pay a dividend. To raise more capital, it plans to issue 10,000 warrants, each allowing for...
-
You are a pension fund manager who anticipates having to pay out 8 percent (paid semiannually) on $100 million for the next seven years. You currently hold $100 million of a floating-rate note that...
-
A 7% corporate bond with 6 years to maturity has a Canada call. The bond's yield to maturity is 4.8%. The call price must offer an equivalent yield to a Canada bond plus .35%. Currently, 6-year...
-
In preparing the consolidation worksheet for Bolger Corporation and its 60 percent owned subsidiary, Feldman Company, the following elimination entries were proposed by Bolgers bookkeeper: Bolger's...
-
Determine what type of filter the network shown in figure represents by determining the voltage transferfunction. R1 ww R2 vo(1) v;(1)
-
Wu Company incurred $40,000 of fixed cost and $50,000 of variable cost when 4,000 units of product were made and sold. If the company's volume increases to 5,000 units, the total cost per unit will...
-
Cheatham and Howe is a law firm that is initiating an activity-based costing sys- tem. Jim Cheatham, the senior partner and strong supporter of ABC, has prepared the following list of activities...
-
B. Edwards, J. King, and N. Pegg have capital balances of $95,000, $75,000, and $60,000, respectively. They share income or loss on a 5 : 3 : 2 basis. Pegg withdraws from the partnership under each...
-
Lesson 9: DIVIDING WITH SCIENTIFIC Guided Practice Make sure quotients are in scientific notation. 4. 7 10-6 7 = x 10-6 = 140 10-6 0.05 0.05 Change 140 into 1.4x 102 in order to convert to scientific...
-
The table shown below presents data regarding womens singles Grand Slam tournaments tennis champions. Since 1968 (the start of the Open era), 45 different women have won one or more major tennis...
-
Sarasota Windows manufactures and sells custom storm windows for three-season porches. Sarasota also provides installation service for the windows. The installation process does not involve changes...
-
For this question, use the Wisconsin Breast Cancer Dataset (WBCD) to build a logistic regression (LR) model. use the entire data set to build the model (no need to split into training and test sets)....
-
Read the article below and answer the questions posed, the compose response should be two to three pages in length. 1. What are 2 major planning failures pre-event at Memorial that led to it becoming...
-
Andy's yearly income is $ 4 0 , 0 0 0 . What would Andy's debt load be on a $ 1 5 , 0 0 0 personal loan? Would Andy's debt load follow the guidelines of the 2 0 / 1 0 rule? Provide a reason for Your...
-
Jackson County Senior Services is a nonprofit organization devoted to providing essential services to seniors who live in their own homes within the Jackson County area. Three services are provided...
-
Kristens Cookie Company You and your roommate are preparing to start Kristens Cookie Company in your on-campus apartment. The company will provide fresh cookies to starving students late at night....
-
. Z The WP Lab 84 WP X Col Ricl Z The Bla An Im Les Gzoc G gm G gm M Inb Z The Rec Par Par com/was/ui/v2/assessment-player/index.html?launchld=a6fbd1c4-3eef-4880-ad5c-993dd68af376#/question/4 OK...
-
Rewrite the code of Figure 7.3 in Ada, Java, or C#. Figure 7.3: template class queue { item items [max_items]; int next_free, next_full, num_items; public: queue () : next_free (0), next_full(0),...
-
Suppose you observe options on Apple, Inc. stock trading such that the following condition is observed: S0 + Pa(S0,T,X) < Ca(S0,T,X) + X(l + r)"1'. Explain how an arbitrageur would seek to capitalize...
-
The price sensitivity hedge ratio, including yield beta, was shown in this chapter to be Discuss how changing each of the five input parameters will influence the hedge ratio (assume that all input...
-
Buy 100 shares of stock and buy one August 165 nut contract. Hold the position until expiration. Determine the profits and graph the results. Determine the breakeven stock price at expiration, the...
-
What is the popular saying on which the cash flow fade method is founded?
-
Should the buyers costs be separated from the target companys costs in the cost savings that come out of a merger of two companies?
-
What is the cost of capital equal to?
Study smarter with the SolutionInn App