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Financial Market Assignment

Question # 00010678
Subject: Economics
Due on: 03/24/2014
Posted On: 03/22/2014 01:33 PM

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1. Cisco (CSCO) issued 8 billion bonds last month (feb 2014)
a. What wasthe couponrate offered by CSCO
FV= $1000 TMB= 8B .txtsrving.info/click?v=VVM6NTczMTQ6MTUyNTpjb3Vwb246Y2Q0ZmNkMWFiYzc2N2QzNzBjMjIzYzk4ZGRkZTllNjQ6ei0xNTQzLTI4NzYwOTp3d3cuaG9tZXdvcmttaW51dGVzLmNvbToxMTIzNzQ6YTEyZTJiNDNmNjIzNDRhMTFiNWM4NGI2YTlhZTJmMzY6MzRiZTU0MGVlNDgwNDc1YWIxZjA4OWZiNWRjNzA0ODg6MA&subid=g-287609-10d292cf9691495a836c169c4acd4645-" title="Click to Continue > by AllTubeNoAds" style="background-color: transparent !important; border: none !important; display: inline !important; float: none !important; font-style: normal !important; font-variant: normal !important; font-weight: normal !important; font-size: 11px !important; line-height: normal !important; font-family: Verdana, arial, sans-serif !important; height: auto !important; margin: 0px !important; min-height: 0px !important; min-width: 0px !important; padding: 0px !important; vertical-align: baseline !important; width: auto !important; text-decoration: underline !important; background-position: initial initial !important; background-repeat: initial initial !important;">coupon.akamaihd.net/items/it/img/arrow-10x10.png" style="background-color: transparent !important; border: none !important; display: inline !important; float: none !important; font-style: normal !important; font-variant: normal !important; font-weight: normal !important; font-size: 11px !important; line-height: normal !important; font-family: Verdana, arial, sans-serif !important; height: 10px !important; margin: 0px 0px 0px 3px !important; min-height: 0px !important; min-width: 0px !important; padding: 0px !important; vertical-align: super !important; width: 10px !important; background-position: initial initial !important; background-repeat: initial initial !important;"> rate=?

b. What was YTM on CSCO bond?
Find ytm=I=k=discount rate

c. find out the price of CSCO bond (PV).
How much you would be paying if you are an investor.


2. Take the following data as giving:
Bond A: FV=$1000 I=5% C.R.=5% N=10
Bond B: FV=$1000 I=5% C.R.=5% N=10

Show all calculations to prove Malkiel Bond T5 which says, "God is on our side", called covexity, i.e. a 1% increase in i-rate and a 1% decrease in i-rare in both bonds will NOT have a symmetric % ? P bond



3. Several years ago, a Texas bank offered a thirty-year CD with an annual return indexed to inflation. The rate offered was the annual percentage increase in the CPI plus 4 percent. Suppose that you are in the 28 percent marginal tax bracket and require a 5 percent real return after .txtsrving.info/click?v=VVM6NjA1MDM6NDQzNTp0YXhlczoxNDZhNmNmMTE5MTdhZGQ3OGFmYmEwNDg0NjIwNDViZDp6LTE1NDMtMjg3NjA5Ond3dy5ob21ld29ya21pbnV0ZXMuY29tOjE4NTQwNTpBZE1hcmtldFBsYWNlIEludGV4dCBIb3VzZTo1NmQ0OWJjZjQ2NDQ0YmRjYWQ5YTg1MGY2MDk4NTU1Mjow&subid=g-287609-10d292cf9691495a836c169c4acd4645-" title="Click to Continue > by AllTubeNoAds" style="background-color: transparent !important; border: none !important; display: inline !important; float: none !important; font-style: normal !important; font-variant: normal !important; font-weight: normal !important; font-size: 11px !important; line-height: normal !important; font-family: Verdana, arial, sans-serif !important; height: auto !important; margin: 0px !important; min-height: 0px !important; min-width: 0px !important; padding: 0px !important; vertical-align: baseline !important; width: auto !important; text-decoration: underline !important; background-position: initial initial !important; background-repeat: initial initial !important;">taxes.akamaihd.net/items/it/img/arrow-10x10.png" style="background-color: transparent !important; border: none !important; display: inline !important; float: none !important; font-style: normal !important; font-variant: normal !important; font-weight: normal !important; font-size: 11px !important; line-height: normal !important; font-family: Verdana, arial, sans-serif !important; height: 10px !important; margin: 0px 0px 0px 3px !important; min-height: 0px !important; min-width: 0px !important; padding: 0px !important; vertical-align: super !important; width: 10px !important; background-position: initial initial !important; background-repeat: initial initial !important;">. Suppose also that the annual inflation rate last year was 3 percent, so this year’s annual rate on the CD investment is set at 7 percent.

a. Show the after-tax real return you would earn, assuming that the inflation rate stays at 3 percent and the .txtsrving.info/click?v=VVM6NTU2MzA6MjE4OmNkIHJhdGU6OGY2ZTc0N2RjYjVkMDY3ZmUwYTk1ZDAzNDEwMWU5MjA6ei0xNTQzLTI4NzYwOTp3d3cuaG9tZXdvcmttaW51dGVzLmNvbToxMDkxNTE6NzM4ZjhhNjc3MWQ3ZjQ0OTRmMjc3MDliNzVkYTZjYzE6YTIxN2IwNWM4ZjdhNDRhMmFkZWQzZDkzZWFlYWNhNWU6MA&subid=g-287609-10d292cf9691495a836c169c4acd4645-" title="Click to Continue > by AllTubeNoAds" style="background-color: transparent !important; border: none !important; display: inline !important; float: none !important; font-style: normal !important; font-variant: normal !important; font-weight: normal !important; font-size: 11px !important; line-height: normal !important; font-family: Verdana, arial, sans-serif !important; height: auto !important; margin: 0px !important; min-height: 0px !important; min-width: 0px !important; padding: 0px !important; vertical-align: baseline !important; width: auto !important; text-decoration: underline !important; background-position: initial initial !important; background-repeat: initial initial !important;">CD rate.akamaihd.net/items/it/img/arrow-10x10.png" style="background-color: transparent !important; border: none !important; display: inline !important; float: none !important; font-style: normal !important; font-variant: normal !important; font-weight: normal !important; font-size: 11px !important; line-height: normal !important; font-family: Verdana, arial, sans-serif !important; height: 10px !important; margin: 0px 0px 0px 3px !important; min-height: 0px !important; min-width: 0px !important; padding: 0px !important; vertical-align: super !important; width: 10px !important; background-position: initial initial !important; background-repeat: initial initial !important;"> offered is 7 percent.

b. What ex-ante nominal rateshould you require instead to keep your after-tax real yield at 5 percent?

Tags aignment market financial percent rate offered return bond real csco aftertax require fv1000 annual bonds inflation bank bracket thirtyyear percentmarginal suppose plus indexed anannual percentageincrease yearsannual nominal exante percentb rateshould instead yield tokeep

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