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1. Consider the following Fixed Income Bond Fund for Marta Inc. e is for Eurodollars Notional principal of portfolio (in millions) e150 Average bond coupon
1. Consider the following Fixed Income Bond Fund for Marta Inc. | e is for Eurodollars | |||||||
Notional principal of portfolio (in millions) | e150 | |||||||
Average bond coupon payment (per E100) | e3.1 | |||||||
Coupon Frequency | Annual | |||||||
Investment Horizon | 1 Year | |||||||
Current Average Bond Price | 101.2 | |||||||
Expected avegage bondprice in one year (assuming an unchanged yield curve) | 101.1 | |||||||
Average bond convexity | 17 | |||||||
Average bond modified duration | 3.5 | |||||||
Expected average yield and yield spread change | 0.30% | |||||||
Expected credit losses | 0.15% | |||||||
Expected Currency losses | 0.70% | |||||||
Value of the portfolio's Equity (millions) | e97.2 | |||||||
Value of borrowed funds (millions) | e 51 | |||||||
Borrowing rate | 3.20% | |||||||
Return on invested funds | 6.50% | |||||||
a. Calculage the total expected return of this porftolio. (assume no reinvestment income) | ||||||||
b. What is the levered portfolio return? |
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