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1 page/≈275 words
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Level:
APA
Subject:
Accounting, Finance, SPSS
Type:
Case Study
Language:
English (U.S.)
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MS Word
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Topic:

What Is The Effect Of An Increase In Treasury Bond To A Normal Company Bond? (Case Study Sample)

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A finance case study

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Task 1
What is the effect of an increase in treasury bond to a normal company bond?
If the interest rates of treasury bonds increase as suggested from 5% to 9% the demand for the company common stock will decrease. This is because by interest on treasury bonds increasing the cost of borrowing is increased as companies will have to pay higher interest rates when issuing their own.
Task 2
What is the yield for the three year and two year treasury security
For the 3 year treasury bond Yr = y* + T + Mp
Mp= maturity risk premium.
Y = Number of years.
Yr= Yield rate
T = average inflation for the period
r = 3 + ((2+4+4)/3) + 0
r = 6.33%
For 2 year treasury bond Yr = y* + T + Mp
r = 3 + ((2+4)/2) + 0
r = 6% for the 2 year
Task 3
It is not possible to construct such a portfolio in the real world. Risk free rate is an investment with no risk of losing money invested which can only happen with treasury bonds. Other aspects in real life have unlimited number of risks as there are too many dynamics and nothing is guaranteed. Because of this, an investor has to be compensated for the risk taken through higher rates.
Task 4
Calculate the portfolio beta
Total portfolio value= value of first stock + value of the second stock
Total portfolio value = $35,000+40,000= $75,000
The weighted better of a stock= value of a stock / total portfolio value * the better factor
For the first investment portfolio given,
Weighted beta = $...
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