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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?

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