Question
In: Finance
A fund will need to pay out $2 million next year, $3 million the following year,...
A fund will need to pay out $2 million next year, $3 million the following year, and then $5 million in the fifth year . If the discount rate is 7%, what is the Macaulay duration of this set of payments?
| A. |
3.10 |
|
| B. |
2.98 |
|
| C. |
3.15 |
|
| D. |
3.20 |
Solutions
Expert Solution
Given for a fund,
Cash flow are as follow:
CF1 = $2 million
CF2 = $3 million
CF5 = $5 million
Discount rate d = 10%
Duration is calculated as below table:
PV of cash flow = Cash flow/(1+d)^year
Total PV = sum of all PV = $8.05 million
weight = PV of cash flow/ Total PV
duration of each cash flow = year*weight
duration of the fund = sum of all duration = 3.10 years
| Year | cash flow | PV of cash flow=cash flow/(1+YTM)^year | weight = PV of Cash flow/Price | Duration = weight*year |
| 1 | $ 2.00 | $ 1.87 | 0.2321 | 0.2321 |
| 2 | $ 3.00 | $ 2.62 | 0.3253 | 0.6507 |
| 3 | $ - | $ - | 0.0000 | 0.0000 |
| 4 | $ - | 0.0000 | 0.0000 | |
| 5 | $ 5.00 | $ 3.56 | 0.4426 | 2.2130 |
| Total PV | $ 8.05 | Duration | 3.10 |
Option A is correct.
jeff jeffy answered 1 year agoRelated Solutions
A fund will need to pay out $2 million next year, $3 million the following year,...
A fund will need to pay out $2 million next year, $3 million the
following year, and then $5 million in the fifth year . If the
discount rate is 7%, what is the Macaulay duration of this set of
payments?
A. 2.98
B. 3.10
C. 3.20
D. 3.15
A fund will need to pay out $2 million next year, $3 million the following year,...
A
fund will need to pay out $2 million next year, $3 million the
following year, and then $5 million in the fifth year. If the
discount rate is 6%, what is the Macaulay duration of this set of
payments?
A. 3.05
B. 3.12
C. 2.85
D. 3.50
1. You manage a pension fund that promises to pay out $10 million to its contributors...
1. You manage a pension fund that promises to pay out $10
million to its contributors in five years. You buy $7472582 worth
of par-value bonds that make annual coupon payments of 6% and
mature in five years. Right after you make the purchase, the
interest rate on same-risk bonds decreases to 4.1%. If the rate
does not change again and you reinvest the coupon payments that you
receive in same-risk bonds, how much will you fall short of the...
Techworld is expecting to pay out a dividend of $2.23 next year (year 1). After that...
Techworld is expecting to pay out a dividend of $2.23 next year
(year 1). After that it expects its dividend to grow at 5 percent
per annum for the next five years (for years 2 to 6). What is the
dividend that is expected to be paid in year 4? (to nearest cent;
don’t include $ sign)
Randy currently has an obligation that he will pay $1 million a year for the next...
Randy currently has an obligation that he will pay $1 million a
year for the next 3 years, what is the duration of his obligation
if the appropriate discount rate is 5%?
If Randy wants to immunize his obligation using a 1-year zero
coupon bond and a perpetuity both yielding 6%. I rounded the
durations to two decimal places to minimize rounding errors.
What is the weight he should invest in the zero?
What is the weight he should invest...
Suppose a firm will pay a $2 dividend next year and expects to increase dividends by...
Suppose a firm will pay a $2 dividend next year and expects to
increase dividends by 20%, 15%, and 10% over the following three
years. After that, dividends will increase at a rate of 5% per year
indefinitely. If the required return is 17%, what is the price of
the stock today?
Group of answer choices
$19.21
$21.50
$18.80
$22.14
$20.98
Suppose a firm will pay a $2 dividend next year and expects to increase dividends by...
Suppose a firm will pay a $2 dividend next year and expects to
increase dividends by 20%, 15%, and 10% over the following three
years. After that, dividends will increase at a rate of 5% per year
indefinitely. If the required return is 17%, what is the price of
the stock today?
Group of answer choices
$22.14
$18.80
$19.21
$21.50
$20.98
A firm is expected to pay a dividend of $13.29 next year and $13.95 the following...
A firm is expected to pay a dividend of $13.29 next year and
$13.95 the following year and financial analysts believe the stock
will be at their target price of $206.69 in two years -Compute the
value of this stock assuming a required return of 13.25%.
A firm is expected to pay a dividend of $2.55 next year and $2.85 the following...
A firm is expected to pay a dividend of $2.55 next year and
$2.85 the following year. Financial analysts believe the stock will
be at their price target of $115 in two years.
Compute the value of this stock with a required return of 11.5
percent. (Do not round intermediate calculations. Round
your final answer to 2 decimal places.)
Safeco is expected to pay a dividend of $1.00 next year and $1.85 in the following...
Safeco is expected to pay a dividend of $1.00 next year and
$1.85 in the following year, and $2.25 in the following year.
Analysts believe that Safeco will hit their price target of $92.50
in three years. What is the value of Safeco stock if your required
return is 10.25 percent?
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- what effect would DNP have on ATP production? if added to culture media, which of the...
- - True to its name, computer networking technologies allow computers of many kinds to be connected...
- 1. (a) Kyan Barron has been made jobless from a managerial position in a financial institution...
- (Calculating the geometric and arithmetic average rate of return) The common stock of the Brangus Cattle...
- --- TURN this Code into Java Language --- #include <iostream> #include <string> using namespace std; //...
- The following bivariate data set contains an outlier. x y 53.3 151.7 37.1 -307.3 44.6 -469.7...
- Washington County’s Board of Representatives is considering the construction of a longer runway at the county...
ADVERTISEMENT