Question 20 A pension fund has an average duration of its liabilities equal to 15 years. The fund is looking at 8- year maturity zero-coupon bonds and a perpetual bond with yield to maturity of 4% to immunize its interest rate risk. How much of its portfolio should it allocate to the zero-coupon bonds to immunize if there are no other assets funding the plan? O 61 percent O47 percent O 39 percent O 53 percent

Question 20 A pension fund has an average duration of its liabilities equal to 15 years. The fund is looking at 8- year maturity zero-coupon bonds and a perpetual bond with yield to maturity of 4% to immunize its interest rate risk. How much of its portfolio should it allocate to the zero-coupon bonds to immunize if there are no other assets funding the plan? O 61 percent O47 percent O 39 percent O 53 percent

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A pension fund has an average duration of its liabilities equal to 15 years. The fund is looking at 5-year maturity zero-coupon bonds and 4% yield perpetuities to immunize its interest rate risk. How much of its portfolio should it allocate to the zero-coupon bonds to immunize if there are no other assets funding the plan? 52.38% 48.38% 33.58% 25.48%
A pension fund's liabilities has a PV01 of $200 million. The plan has $100 billion of assets with a weighted average modified duration of 8. The highest duration bond that the plan can invest in has a modified duration of 28. How much of the existing assets should be invested in this bond with a modified duration of 28 to minimize the interest risk exposure of the fund? A. $0 B. $20 billion C. $40 billion D. $60 Billion. Need typed answer only.Please give answer within 45 minutes
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?
3. A pension fund has the following liability obligations to its pensioners: Market Value $4.25 Bln $5.75 Bln $3.50 Bln Liability A B C It has $13.50 Bln available cash to invest in the following bonds: Bond Ꭰ E Modified Duration Modified Duration 5.25 11.86 6.25 8.05 7.55 Set up the system of equations to determine how much of its available cash should the pension fund invest in the two bonds to ensure that the market value duration of assets will match the market value duration of liabilities.
Question 1) 401K where m= | + BCE) =d (), 12.t m-1 la) Mutual fund is earning an APR of 9%. (r=.09). What monthly deposit d is needed for a balance 'of 2million dollars in 40years? Show work. b) Assume uour mutual fund is eaning an APR of 107. (r=10). What monthly deposit d is needed for a balance of 2million dollars in 4Ouears? C) Assume your mutual fund is earning an APR of 11% (F=.l1). What monthly deposit is needed for a balance of 2million dollars in 40uears?
Question 1) 니01K 12.t where m=1+7 B(t) =d() 12 m-l a) Mutual fund is carning an APR of What monthly deposit d is needed for a balnce 'of 2million dollars in 40years? Show work.
INV 1 6d You have decided to invest in three mutual funds: one in equities, one in long corporate and government bonds, and a money market fund invested in T-bills yielding 5%. Your estimate of the relevant parameters for the equities and bond funds are as follows: Expected Return Standard Deviation Equities .15 .30 Bonds .06 .09 The correlation between the fund returns is 0.12. Without the money market fund, what would be the weights of a portfolio on the best feasible CAL, composed of the equities and bond funds which would be expected to return 10%, and what would be its standard deviation?
3. If you invest P5,000 in a mutual fund with a total annual return (interest rate) of 8% and you re-invest the proceeds each year, what will be the value of your investment after five years? a.P3,402.92b.P6,597.08c.P7,000.00d.P7,346.64
D3) Finance You invest in a mutual fund that charges a 3% front-end load, 1% operating costs, and a 1% 12b-1 fees. What are the total fees in year 1 on an initial investment of $20,000 with 10% annual growth in fund's asset value, or NAV? Note that "initial investment" means it is before the deduction of frontend load.
Calculate the effective annual return on fed funds that are 3 days from maturity and have a quoted yield of 0.5 percent. Select one: .2535% .2538% 1.2535% 1.2538% .51% none of the above
4 Rates on federal funds and repurchase agreements are stated: 3 Multiple Choice E on a bond equivalent basis with a 360-day year. on a bond equivalent basis with a 365-day year. as a discount yield with a 360-day year. as an EAR. as a discount yield with a 365-day year. Q Search $ 4 R % 5 * 19 C 8 10 DII
Determine how much you would be willing to pay for a bond that pays $60 annual interest indefinitely and never matures (i.e., a perpetuity), assuming you require an 8 percent rate of return on this investment. a. $743 b. $1,000 c. $480 d. $750

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