Q3. An investor purchased a newly issued bond with a maturity of 10 years, 200 days ago. The bond carries a coupon rate of 8% paid semiannually and has a face value of 1,000. The price of the bond with accrued interest is 1,146.92. The investor plans on selling the bond 365 days from now. The schedule of coupons over the first two years from the date of purchase is as follows: Days After Purchase 181 Coupon First Second 365 Third 547 Fourth 730 52 19 55 Amount 40 40 40 40 A. Should the investor enter into a long or short forward contract to hedge his risk exposure? B. Calculate the "No Arbitrage" price at which the investor should enter the contract. Assume the risk-free rate is 6%. C. The Forward contract is now 180 days old. Interest rates have fallen sharply and the risk-free rate is now 4%. The price of the bond is now 1,302.26. Determine the value of the Forward contract now and indicate whether the investor has accrued a gain or a loss on his position. A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long- term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.6%. The probability distributions of the risky funds are: A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.6%. The probability distributions of the risky funds are: Stock fund (S) Bond fund (B) Expected Return 17% 8% Standard Deviation 46% 40% The correlation between the fund returns is 0.0600. What is the expected return and standard deviation for the minimum-variance portfolio of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return % Standard deviation % 3. You are so excited to be purchasing your first home though you are also nervous about undertaking your first mortgage. You are getting ready to sign the mortgage document for a $200,000 loan amortized over 25-years. The loan involves monthly payments over a 5-year term and a nominal interest rate of 6% compounded semi-annually. (a) What is your monthly payment? (b) What is the balance of principal at the close of the 5- year term? (c) Assuming that after 5 years you renew your mortgage for another 5 year term at the same interest and with the same payments, then for your first monthly payment under the new term, how much will go towards reducing the principal, and how much will go towards interest?