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Bond present value for a money manager

A money manager is holding the following portfolio:

Stock Amount Invested Beta
1 $300,000 0.6
2 300,000 1.0
3 500,000 1.4
4 500,000 1.8

The risk-free rate is 6 percent and the portfolio's required rate of return is 12.5 percent. The manager would like to sell all of her holdings of Stock 1 and use the proceeds to purchase more shares of Stock 4. What would be the portfolio's required rate of return following this change?

If the yield to maturity decreased 1 percentage point, which of the following bonds would have the largest percentage increase in value?

a. a 1 year bond with an 8 percent coupon
b. a 1 year zero coupon bond
c. a 10 year zero coupon bond
d. a 10 year bond with an 8 percent coupon
e. a 10 year bond with a 12 percent coupon

Solution Summary

A calculation made to value a bond held by a money manager.

$2.19