A and B is 0.35, what are the expected return and standard deviation for a portf

Question

A and B is 0.35, what are the expected return and standard deviation for a portfolio comprised of 30 percent asset A and 70 percent asset B? A 10-year Treasury bond with par value of $1,000 has a 6% coupon rate and pays interest every six months. The bond is three years old and has just made its sixth payment. The market now only require a 5% return on the bond. What is the expected price of the bond? You have the choice between investing in a corporate bond with a yield of 8% or a municipal bond. If your marginal tax rate is 28%, what should be the yield on the municipal bond in order t competitive?

Explanation / Answer

#9

Bond Value = pv(rate, nper,pmt,fv)

Nper  (indicates the semi annual period) = (10-3)*2 = 14

PV (indicates the price) = ?

PMT (indicate the semi annual payment) = 1000*6%*1/2 = 30

FV (indicates the face value) = 1000

Rate (indicates Half year YTM) = 5%*1/2 = 2.5%

Bond Value = pv( 2.5%,14,30,1000)

Bond Value = $ 1058.45

# 10

Yield on the muncipal bond in order to be competitive = 8%*(1-28%)

Yield on the muncipal bond in order to be competitive = 5.76%

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