Question

Brenton, Berean and Basak (BBB) is a pension fund specialist looking for a bond with a...

Brenton, Berean and Basak (BBB) is a pension fund specialist looking for a bond with a particular duration to add to their existing portfolio in order to immunize the portfolio. Crawford, Coty and Connor (CCC) has an outstanding bond with a 8.975% coupon, 4 years to maturity, and a yield to maturity of 11.5% that meets BBB’s criterion.

12. What would be the modified duration of the above bond if it paid interest semi-annually? (2 points)

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

ANSWER IN THE IMAGE ((YELLOW HIGHLIGHTED). FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Use the following information to answer questions 9 through 12. Brenton, Berean and Basak (BBB) is...
Use the following information to answer questions 9 through 12. Brenton, Berean and Basak (BBB) is a pension fund specialist looking for a bond with a particular duration to add to their existing portfolio in order to immunize the portfolio. Crawford, Coty and Connor (CCC) has an outstanding bond with a 8.975% coupon, 4 years to maturity, and a yield to maturity of 11.5% that meets BBB’s criterion. 10. What is the modified duration of the bond above assuming interest...
A pension fund has an average Macaulay duration of its liabilities equal to 15 years. The...
A pension fund has an average Macaulay duration of its liabilities equal to 15 years. The fund is looking at 3-year maturity zero coupon bonds and 3% 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?
A pension fund has an average duration of its liabilities equal to 10 years. The fund...
A pension fund has an average duration of its liabilities equal to 10 years. The fund is looking at 4-year maturity zero-coupon bonds and 18-year maturity zero-coupon bonds to immunize its interest rate risk. How much of its portfolio should it allocate to the 4-year zero-coupon bonds and 18-year maturity zero-coupon bonds to immunize if there are no other assets funding the plan? A. 46%, 54% B. 58%, 42% C. 57%, 43% D. 52%, 48%
You manage a pension fund that has a target duration of 10 years, you must immunize...
You manage a pension fund that has a target duration of 10 years, you must immunize your portfolio using two bonds. The first bond is a 6-year zero-coupon bond and the second bond is a perpetuity. Both securities have a 10% yield to maturity. What percentage of your assets will you invest in the zero-coupon bond?
Pension funds pay lifetime annuities to recipients. If a firm remains in business indefinitely, the pension...
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 fund with obligations to make perpetual payments of $3.7 million per year to beneficiaries. The yield to maturity on all bonds is 20%. a. If the duration of 5-year maturity bonds with coupon rates of 16% (paid annually) is 3.7 years and the duration of 20-year maturity bonds with coupon rates...
Pension funds pay lifetime annuities to recipients. If a firm remains in business indefinitely, the pension...
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 fund with obligations to make perpetual payments of $2.6 million per year to beneficiaries. The yield to maturity on all bonds is 16%. a. If the duration of 5-year maturity bonds with coupon rates of 12% (paid annually) is 4.0 years and the duration of 20-year maturity bonds with coupon rates...
A bond has a coupon rate of 6 percent, with payments semi-annually. It matures in 2.5...
A bond has a coupon rate of 6 percent, with payments semi-annually. It matures in 2.5 years and has a yield to maturity of 7 percent (15 points). a. Use the “long method” to determine the duration and modified duration of this bond? b. If the yield to maturity increases to 9 percent, what is the approximate percent change in price based on the modified duration calculated in ‘a?’ c. What is the actual percentage change in price if the...
A semi-annual coupon bond with 2 years to maturity and 8% per annum coupon rate has...
A semi-annual coupon bond with 2 years to maturity and 8% per annum coupon rate has a face value of $1,000 with a yield to maturity of 12% per annum (compounded semi-annually). Using the bond’s modified duration, estimate the new bond price when the yield to maturity immediately changes from 12% per annum to 8% per annum. Select one: a. 66.27 dollars.   b. 996.97 dollars. c. 930.70 dollars. d. 864.43 dollars. e. None of the statements is true.
3. Suppose that you’re given a 8-year 7.2%-coupon bond with $1,000 face value that pays the...
3. Suppose that you’re given a 8-year 7.2%-coupon bond with $1,000 face value that pays the semi-annual coupon payments, the bond price in the market is $886 per bond, answer the following questions: a) What is the yield to maturity? What is the idea of yield to maturity? Explain the difference between your bond’s yield to maturity versus the term structure of interest rates. b) Suppose you are about to apply the immunization strategy for the bond portfolio what is...
Please answer the 8 questions. Thank you! 1. Cullumber, Inc., has issued a three-year bond that...
Please answer the 8 questions. Thank you! 1. Cullumber, Inc., has issued a three-year bond that pays a coupon rate of 9.4 percent. Coupon payments are made semiannually. Given the market rate of interest of 4.0 percent, what is the market value of the bond? Round answer to 2 decimal places 2. Ten-year zero coupon bonds issued by the U.S. Treasury have a face value of $1,000 and interest is compounded semiannually. If similar bonds in the market yield 11.6...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT