7. Assume that you manage a bond portfolio. The bonds in your portfolio differ in terms of maturity as well as coupon rates. Looking ahead to the next twelve to eighteen months, you expect interest rates to rise significantly. You are required to keep it a bonds-only portfolio, that is you are not authorized to switch to equities. What actions might you take to adjust your bond portfolio for this anticipated change in interest rates? Explain your answer. You are planning to retire after 40 years from today. Staring at the end of the 41st year, you want to draw $50,000 per year during the following 25 years. To pay for these withdrawals, you want to deposit a fixed amount annually into your account, starting one year from now. Assume that the interest rate will remain unchanged at 7% during this period. However, you also expect that the interest rate will go up thereafter 8. 3 and will settle at 9% during the next 30 year. How much must you deposit annually to achieve your financial goal? You must explain your answer fully. 9. As a financial manager, you want to maximize the value of your company. To increase its production and sale of a product, the company is planning to install a new machine. You have been asked to evaluate two machines, A and B, and recommend the selection of one of them. Machine A has expected economic life of 5 years and it costs $100,000 today. Machine B has an expected economic life of 3 years, and it costs $72,000 today. It would cost $13,000 per year to operate Machine A, and $15,000 per year to operate Machine B. You assume that the cost of capital is 12% per year. Which machine would you recommend, and why? Give clear reasons for your selection. 7. Assume that you manage a bond portfolio. The bonds in your portfolio differ in terms of maturity as well as coupon rates. Looking ahead to the next twelve to eighteen months, you expect interest rates to rise significantly. You are required to keep it a bonds-only portfolio, that is you are not authorized to switch to equities. What actions might you take to adjust your bond portfolio for this anticipated change in interest rates? Explain your answer. You are planning to retire after 40 years from today. Staring at the end of the 41st year, you want to draw $50,000 per year during the following 25 years. To pay for these withdrawals, you want to deposit a fixed amount annually into your account, starting one year from now. Assume that the interest rate will remain unchanged at 7% during this period. However, you also expect that the interest rate will go up thereafter 8. 3 and will settle at 9% during the next 30 year. How much must you deposit annually to achieve your financial goal? You must explain your answer fully. 9. As a financial manager, you want to maximize the value of your company. To increase its production and sale of a product, the company is planning to install a new machine. You have been asked to evaluate two machines, A and B, and recommend the selection of one of them. Machine A has expected economic life of 5 years and it costs $100,000 today. Machine B has an expected economic life of 3 years, and it costs $72,000 today. It would cost $13,000 per year to operate Machine A, and $15,000 per year to operate Machine B. You assume that the cost of capital is 12% per year. Which machine would you recommend, and why? Give clear reasons for your selection