MINI CASE Assume that recently graduated and landed a job as a planner with Coe
ID: 2634073 • Letter: M
Question
MINI CASE Assume that recently graduated and landed a job as a planner with Coe an you advisory company. Your first client recently ted some has investment them. client owns bond Portfolio million invested in evaluate bonds that mature in 10 years.40 dien has $2 m ion zero coupon Treasury company that produces meat and invested in the stock of Blandy, Inc, a for shaky times." potatoes frozen dinners. Blandy's slogan is "Solid food acrimonious di Unfortunately, Congress and the President are engaged in an spute the budget and the debt ceiling. The outcome of the dispute, which will not be until the end of the year, will have a big impact on interest rates one year from now, Yoe first is to determine the risk of the client's bond After with economists at your firm, you have specified five possible scenarios for the resolution oft dispute at the end of the year. For each scenario, you have estimated the probability of scenario occurring and the impact on interest rates and bond prices if the scenario occur Given this information, you have calculated the rate of return on 10-year zero coupon each scenario. The probabilities and returns are shown below: 40The total par value at maturity is $1.79 million and yield to maturity is about 6%, but that information is necessary for this mini case.Explanation / Answer
the expected return on bond investment is
= 0.1* (-14) +0.2 *(-4) + 0.4* 6+ 0.2*16+ 0.1*26
=6%
the expected return is 6%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.