ANSWER THE FOLLOWING QUESTIONS. Quality of content and use of course and outside-of-course resources to support your position or analysis. When applicable, refer to your workplace using it and your own job as examples. The answers should not be in the form of essay, just straight to the point, in full sentences- Work must be original and cite your sources.
#2: You predict that interest rates are about to fall. Which bond will give you the highest capital gain? Explain your choice
a. Low coupon, long maturity
b. High coupon, short maturity
c. High coupon, long maturity
d. Zero coupon, low maturity
#16: 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 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 years and the duration of 20-year maturity bonds with coupon rates of 6% (paid annually) is 11 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation?
b. what will be the par value of your holdings in the 20-year coupon bond?
#6: The present value of a firm’s projected cash flows are $15 million. The break-up value of the firm if you were to sell the major assets and divisions separately would be $20 million. This is an example of what Peter Lynch would call a(n):
Explain your choice
b. Slow-growth firm
d. Asset play
#24: You have $5,000 to invest for the next year and are considering three alternatives:
a. A money market fund with an average maturity of 30 days offering a current annualized yield of 3%
b. A one-year savings deposit at a bank offering an interest rate of 4.5%
c. A 20-year U.S. Treasury bond offering a yield to maturity of 6% per year.
What role does your forecast of future interest rates play in your decision? explain.