Question

In: Finance

An institutional investor wishes to sell part of their bond portfolio. Which of the following risk...

An institutional investor wishes to sell part of their bond portfolio. Which of the following risk factors is most significant in affecting the cost of this transaction?

  1. Credit risk
  2. Liquidity risk
  3. Reinvestment risk

Solutions

Expert Solution

Liqudiity Risk factors is most significant in affecting the cost of this transaction


Related Solutions

An investor wishes to purchase a 1-year forward contract on a risk-free bond which has a...
An investor wishes to purchase a 1-year forward contract on a risk-free bond which has a current market price of £97 per £100 nominal. The bond will pay coupons at a rate of 7% per annum half-yearly. The next coupon payment is due in exactly 6 months, and the following coupon payment is due just before the forward contract matures. The 6-month risk-free spot interest rate is 5% per annum effective and the 12-month risk-free spot interest rate is 6%...
An investor wishes to measure the investment risk presented by an asset which has the following...
An investor wishes to measure the investment risk presented by an asset which has the following distribution:                    State   Return   Probability                        1       10%         0.5                       2        20%        0.3 3        50%        0.2    (i) Evaluate any three different measures of investment risk for this asset. Where necessary, you may assume a benchmark return of 25%.      (ii) State two key properties of Value at Risk (VaR).
For an investor with risk aversion index A=4, which portfolio is preferable? A. Portfolio B with...
For an investor with risk aversion index A=4, which portfolio is preferable? A. Portfolio B with an expected return of 10% and standard deviation of 17% B. Risk-free asset with an expected return of 4% C. Portfolio C with an expected return of 12% and standard deviation of 20% D. Portfolio A with an expected return of 8% and a standard deviation of 13%
1.If you are a risk-averse investor that is buying a bond, which of the following features...
1.If you are a risk-averse investor that is buying a bond, which of the following features would you prefer: Secured by collateral Sinking fund Callable Protective covenants 2. How would an upgrade on a bond’s credit rating (say from BBB to AA) affect its yield? 3.Microsoft currently pays a dividend of $2.50. The company’s goal is to increase dividends by 4% each year. You, the investor, require a rate of return of 12%. What is the current price you would...
An English institutional investor has invested in a portfolio of stocks in Russia. The annual inflation...
An English institutional investor has invested in a portfolio of stocks in Russia. The annual inflation rate is 6 percent in Russia and 2.5 percent in the England. Suppose that the annual return on the portfolio is 12 percent in Russian rubles, and the Russian ruble depreciated with respect to the pound by 5 percent. Also suppose that a Russian institutional investor also held a portfolio with the same composition. Compare the real returns for both investors, and discuss why...
Which of the following is not a determinant of the risk of a portfolio? A) the...
Which of the following is not a determinant of the risk of a portfolio? A) the amount of money invested in each asset in the portfolio B) the degree to which the returns of the assets in the portfolio move together C) the expected returns on the individual assets in the portfolio D) the number of assets in the portfolio
Which of the following is NOT a determinant of the risk of a portfolio? A. The...
Which of the following is NOT a determinant of the risk of a portfolio? A. The amount of money invested in each asset in the portfolio. B. The degree to which the returns of the assets in the portfolio move together. C. The expected returns on the individual assets in the portfolio. D. The number of assets in the portfolio. E. Both C & D.
Which of the following types of risk is the least important risk for a diversified investor?...
Which of the following types of risk is the least important risk for a diversified investor? A:) systematic risk B:) Undiversifiable risk C:) market risk D:) idiosyncratic risk  
An investor wishes to invest all of her $6.5 million in a diversified portfolio through a...
An investor wishes to invest all of her $6.5 million in a diversified portfolio through a commercial lender. The types of investments, the expected annual interest rate for the investment, and the maximum allowed percentage of the total portfolio that the investment can represent are shown in the table below: INVESTMENT EXPECTED INTEREST MAXIMUM ALLOWED (% of total portfolio) Low-income mortgage loans 7.40% 20% Conventional mortgage loans 6.20% 25% Government sponsored mortgage loans 8.00% 25% Bond investments 4.45% 30% Stock...
An investor with a risk aversion coefficient of A=2.5 is considering forming a portfolio with a...
An investor with a risk aversion coefficient of A=2.5 is considering forming a portfolio with a risk-free and a risky asset. The risk-free rate is 4%, the risky asset has an expected return of 12% with a standard deviation of 20%. (a) Calculate a utility table with weights in 10% increments (0%, 10%, 20%, … 100%) between risk-free and risky asset. (b) Find the set of weights that maximizes the utility for such investor.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT