Questions from General Investment

Q: You own a fixed-income asset with a duration of five

You own a fixed-income asset with a duration of five years. If the level of interest rates, which is currently 8%, goes down by 10 basis points, how much do you expect the price of the asset to go up...

Q: Jones Group has been generating stable after-tax return on equity

Jones Group has been generating stable after-tax return on equity (ROE) despite declining operating income. Explain how it might be able to maintain its stable after-tax ROE.

Q: Rank the interest rate sensitivity of the following pairs of bonds.

Rank the interest rate sensitivity of the following pairs of bonds. a. Bond A is a 6% coupon, 20-year-maturity bond selling at par value. Bond B is a 6% coupon, 20-year-maturity bond selling below pa...

Q: Long-term Treasury bonds currently are selling at yields to maturity

Long-term Treasury bonds currently are selling at yields to maturity of nearly 6%. You expect interest rates to fall. The rest of the market thinks that they will remain unchanged over the coming year...

Q: You will be paying $10,000 a year in tuition

You will be paying $10,000 a year in tuition expenses at the end of the next two years. Bonds currently yield 8%. a. What are the present value and duration of your obligation? b. What maturity zero...

Q: Pension funds pay lifetime annuities to recipients. If a firm remains

Pension funds pay lifetime annuities to recipients. If a firm remains in business indefinitely, the pension obligation will resemble a perpetuity. Suppose, therefore, that you are managing a pension f...

Q: Frank Meyers, CFA, is a fixed-income portfolio manager

Frank Meyers, CFA, is a fixed-income portfolio manager for a large pension fund. A member of the Investment Committee, Fred Spice, is very interested in learning about the management of fixed-income p...

Q: Spice asks Meyers (see previous problem) to quantify price changes

Spice asks Meyers (see previous problem) to quantify price changes from changes in interest rates. To illustrate, Meyers computes the value change for the fixed-rate note in the table. Specifically, h...

Q: You are managing a portfolio of $1 million. Your target

You are managing a portfolio of $1 million. Your target duration is 10 years, and you can choose from two bonds: a zero-coupon bond with maturity five years and a perpetuity, each currently yielding 5...

Q: Find the duration of a bond with settlement date May 27,

Find the duration of a bond with settlement date May 27, 2018, and maturity date November 15, 2027. The coupon rate of the bond is 7%, and the bond pays coupons semiannually. The bond is selling at a...