A fund manager expects to have funds to invest in three months' time and plans to buy 34 million corporate bonds, currently yielding 7.00% p.a. The manager hedges their interest rate risk using three-year Treasury bond futures contracts, currently priced at 94.500. In three months' time the fund manager buys $4 million corporate bonds at yield of 6.84% p.a. and closes out their futures market position at 95.250. What is the profit from closing out the futures position.
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- Suppose that a portfolio management company manages an investment fund. The fund manager observes a bond in the market and intends to add it to the fund portfolio. The bond has a $100.000 par value, 10% coupon rate (coupon payments are annual) and a 2-years maturity. The business model is to “hold-until-maturity”. The company purchases the bond at the beginning of the year when the market yields are 12%. After exactly 1 year of investment, market yields increase to 14%. What would be the approximate profit or loss amount in the income statement for that 1-year period? A) $ 1,594 loss B) $ 1,723 lossC) $ 9,871 profit D) $ 10,191 profitE) Other (please specify)Suppose that a portfolio management company manages an investment fund. The fund manager observes a bond in the market and intends to add it to the fund portfolio. The bond has a 100.000 TL par value, 10% coupon rate (coupon payments are annual) and a 2-years maturity. The business model is to “hold-until-maturity”. The company purchases the bond at the beginning of the year when the market yields are 12%. After exactly 1 year of investment, market yields increase to 14%. What would be the approximate profit or loss amount in the income statement for that 1-year period? A) 1.723 TL loss B) 10.191 TL profit C) 9.871 TL profit D) 1.594 TL loss E) OTHERWorking as an investment analyst for a fund that invests in fixed-income assets, you are tasked with evaluating the efficacy of a potential investment. You are given a bond that has a 5% coupon rate and matures in 5 years. Assume comparable debt yields 7% and that the bond is sold in increments of $1,000. What is the value of one increment of the bond?
- Based on the information above: ii. Chris Johnson fund managers has proposed him to invest on JigsawBerhad where the firm is setting the terms on a new issue of bonds withwarrants. The bonds will have a 30-year maturity and annual interestpayments. Each bond will come with 20 warrants that give the holder theright to purchase one share of share per warrant. The fund managerestimate that the value of each warrant will be RM10.50. The interest rateis 10 percent. Calculate the coupon rate should be set on the bonds-withwarrants so that the package would sell for RM1,000.A mutual fund plans to purchase $500,000 of 30-year Treasury bonds in four months. These bonds have a duration of 12 years and are priced at 96-08 (32nds). The mutual fund is concerned about interest rates changing over the next four months and is considering a hedge with T-bond futures contracts that mature in six months. The T-bond futures contracts are selling for 98-24 (32nds) and have a duration of 8.5 years. If interest rate changes in the spot market exactly match those in the futures market, what type of futures position should the mutual fund create? How many contracts should be used? If the implied rate on the deliverable bond in the futures market moves 12 percent more than the change in the discounted spot rate, how many futures contracts should be used to hedge the portfolio? What causes futures contracts to have a different price sensitivity than the assets in the spot markets?A fund manager has a portfolio worth $95 million with a beta of 1.16. The manager is concerned about the performance of the market over the next two months and plans to use three-month futures contracts on the S&P 500 to hedge the risk. The current level of the S&P 500 index is 2,675, the risk-free rate is 2% per annum, and the dividend yield on the index is 4% per annum. The current 3-month S&P 500 index futures price is 2,660, and one contract is on 250 times the index. (a) What position should the fund manager take to eliminate all risk exposure to the market over the next two months? (B' = 0) How many three-month S&P 500 futures contracts should the fund manager buy or sell now? (Rounding to the nearest whole number.) (b) Calculate the effect of your strategy on the fund manager's returns if the level of the S&P 500 index in two months is 2,585. Assume that the 3-month S&P 500 index futures price is 2,570 in two months. What would be the expected value of the fund manager's hedged…
- Consider the following hypothetical investment for the fund. Issue a one-month liability and purchase a $1,000, 15-year, 5% coupon Treasury bond. Assume that the one-month interest rate is currently 2% and that the 15-year interest rate is currently 5%. How much in liabilities would the fund have to issue to finance the purchase of the Treasury bond? At the end of one year the fund has received the coupon-interest payment on the bond and paid interest on its short-term liabilities. What is the net earnings for the fund for that year? What is the value of the bond investment at the end of the year (there are 14 years to maturity remaining on the bond) assuming that the long-term rate is still 5%? What is the net asset value (market value of assets minus liabilities) of the fund?Martin Brown is a fixed-income portfolio manager who works with large institutional clients. Brown is meeting with Sarah Redi, a consultant to the Horizon Redi Pension Plan, to discuss the management of the fund's, approximately R100 million. Treasury bond portfolio. The current Treasury yield curve is given in the following table. Maturity (years) 1 12 3 4 YTM (%) 6.0 8.0 9.0 9.5 Assume that the liquidity premiums for the one-year, two-year and three-year maturities (one year from now) are 1% 2.33% and 4%, respectively, determine the expected spot rates in one years time for the one, two, and three year maturing bonds.A fund manager has a portfolio worth $55 million with a beta of 1.37. The manager is concernedabout the performance of the market over the next five months and plans to use six-month futurescontracts on the S&P 500 to hedge the risk. The current level of the index is 3,000, one contract ison 250 times the index, the risk-free rate is 5% per annum, and the dividend yield on the index is3% per annum. The current 6-month futures price is 3,030. The fund manager takes a position inS&P 500 index futures to eliminate half of the exposure to the market over the next five months.Calculate the effect of your strategy on the fund manager’s returns if the level of the market in fivemonths is 2,950 and one-month futures price is 1% higher than the index level in five months.
- Suppose a bond fund has an initial portfolio value of $100 million. The following table provides the market value of the portfolio at the end of each of the next four months Assuming this fund experiences no cash withdrawals or contributions over this period, what is the portfolio's dollar-weighted return over this four-month evaluation periad? Month Market value ($ millions) 50 150 75 120 O447% 4.66% 4.29% O4.85%You invest $100,000 in a hedge fund with a 2/20 fee structure. For the next 3 years, the hedge fund earns annual returns of 27.12%, -14.58%, and 79.45%. You make no withdrawals from the fund. Whenever fees are due, you write a check for that amount to the fund (such that the fund doesn't deduct the fees from your portfolio value). The fund's fee structure has a high watermark feature. What are the total fees you pay over the course of the three years? Enter a number with two decimal points. Answer the question in dollar amount, i.e., if the answer is $20, enter 20.00.A pension fund faces a promised outflow of $5 million in 6 years. Its managers plan to dedicate a portfolio comprised of the following two bonds to meet this obligation. a. What must be the proportions ((W7, W6) or (Weight(A), Weight(B)) of the two bonds in this 2-security portfolio to immunize it against changes in interest rates? b. What is the yield to maturity for the immunized portfolio? c. How much needs to be invested in each bond to build an immunized portfolio with an expected value of $5 million in 6 years? d. Suppose that it is now 3 years later and that there has been a parallel increase in interest rates of 2%. Explain how immunization at least partially protects this portfolio. That is, what are the sources of losses and gains associated with each of the bonds caused by the increase in interest rates? How do they offset each other?