Questions from General Investment

Q: What is the duration of the bond in the previous problem if

What is the duration of the bond in the previous problem if coupons are paid annually? Explain why the duration changes in the direction it does.

Q: You manage a pension fund that will provide retired workers with lifetime

You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are going to closely resemble level perpetuities of $1 million per year....

Q: Which of the following best explains a ratio of “net sales

Which of the following best explains a ratio of “net sales to average net fixed assets” that exceeds the industry average?) a. The firm added to its plant and equipment in the past few years. b. The...

Q: Find the convexity of a seven-year maturity, 6%

Find the convexity of a seven-year maturity, 6% coupon bond selling at a yield to maturity of 8%. The bond pays its coupons annually. (Hint: You can use the spreadsheet from this chapter’s Excel Appli...

Q: a. Use a spreadsheet to calculate the durations of the two

a. Use a spreadsheet to calculate the durations of the two bonds in Spreadsheet 11.1 if the market interest rate increases to 12%. Why does the duration of the coupon bond fall while that of the zero...

Q: a. Footnote 2 in the chapter presents the formula for the

a. Footnote 2 in the chapter presents the formula for the convexity of a bond. Build a spreadsheet to calculate the convexity of the 8% coupon bond in Spreadsheet 11.1 at the initial yield to maturity...

Q: A 30-year maturity bond making annual coupon payments with a

A 30-year maturity bond making annual coupon payments with a coupon rate of 12% has duration of 11.54 years and convexity of 192.4. The bond currently sells at a yield to maturity of 8%. a. Use a fin...

Q: Currently, the term structure is as follows: One-year

Currently, the term structure is as follows: One-year bonds yield 7%, two-year zero-coupon bonds yield 8%, three-year- and longer-maturity zero-coupon bonds all yield 9%. You are choosing between one-...

Q: A 30-year maturity bond has a 7% coupon rate

A 30-year maturity bond has a 7% coupon rate, paid annually. It sells today for $867.42. A 20-year maturity bond has a 6.5% coupon rate, also paid annually. It sells today for $879.50. A bond market a...

Q: A 12.75-year-maturity zero-coupon bond

A 12.75-year-maturity zero-coupon bond selling at a yield to maturity of 8% has convexity of 150.3 and modified duration of 11.81 years. A 30-year-maturity 6% coupon bond making annual coupon payments...