An investor is considering adding three new securities to her internationally focused fixed income portfolio. She considers the following non-callable securities:1-year government bond10-year government bond10-year BBB rated corporate bondShe plans to invest equally in all three securities being analyzed or will invest in none of them at this time. She will only make the added investment provided that the expected spread/premium of the equally weighted investment is at least 1.5 percent (150bp) over the 1-year government bond. She has gathered the following information:Risk free interest rate (1-year, incorporating 0.6% inflation expectation) 1.0%Term premium (10-year vs. 1-year government bond) 1%10-year BBB credit premium (over 10-year government bond) 75bpEstimated liquidity premium on 10-year corporate bonds 55bpUsing only the information given, address the following problems using the risk premium approach:Question

Suppose that a life insurance company sells a five-year guaranteed investment contract that guarantees an interest rate of 7.5% per year on a bond-equivalent yield basis (or equivalently, 3.75% every six months for the next 10 six-month periods). Also suppose that the payment made by the policyholder is $9,642,899. Consider the following three investments that can be made by the portfolio manager: Bond X: Buy $9,642,899 par value of an option-free bond selling at par with a 7.5% yield to maturity that matures in five years. Bond Y: Buy $9,642,899 par value of an option-free bond selling at par with a 7.5% yield to maturity that matures in 12 years. Bond Z: Buy $10,000,000 par value of a six-year 6.75% coupon option-free bond selling at 96.42899 to yield 7.5%. Answer the below questions. (a) Holding aside the spread that the insurance company seeks to make on the invested funds, demonstrate that the target accumulated value to meet the GIC obligation five years from now is $13,934,413.

Multiple Choice QuestionWhich of the following would not be a good choice when investing for investment income?Multiple choice question.corporate bondspreferred stockmunicipal bondsjust any common stock

A portfolio manager is considering 3 portfolios for his client. The first is amidcap stock portfolio, the second is a long-term government andcorporate bond portfolio, and the third is a risk -free asset portfolio.Comprising t- bills that yield a rate of 6.5%. The risk -returncharacteristics of risky portfolio are:Expected Return Standard DeviationStock Portfolio 15% 22%Bond Portfolio 10% 8%The correlation between the return of the two-risk portfolio is 0.10.1.Compute the weight of Bond and equity portfolio in the minimum-variance portfolio formed by combining the two risky portfolios.2.Tabualate and trace the investment opportunity set of the portfoliocomprising the two risky portfolios by varying the investment proportionsfor the stock portfolio from zero to 100% in increments of 20%3. Compute the weight of funds invested in T- bills and two riskyportfolios that together comprise the optimal risky portfolio. What is riskassociated with this optimal portfolio

Which of the following is an example of a fixed-income security?  A. Equity shares  B. Preference shares  C. Debentures  D. Convertible bonds

Exactly one year ago, an investor purchased a $100 face value zero coupon bond with 4 years to maturity. The market yield to maturity at that time was 6% p.a. compounded semi-annually. Now, one year later, with the market yield to maturity decreases to 5% p.a., the same investor purchases another security that pays a stream of cash flows of $3 every six months for 3 years and with no face value. The combined current value of both investments (i.e., the zero coupon bond bought one year ago and the new security bought today) based on the current market yield to maturity is likely to be:A.ZeroB.Greater than the par valueC.Less than the par valueD.Equal to the par value