Use the Following Discount Factors When Needed

question 12

Short Answer

Use the following discount factors when needed.
-Calculate the convexity of the following portfolio:
i. 2 units of a 1.5-year ?xed rate bond paying 6% quarterly.
ii. 4 units of a 1.75-year ?oating rate bond paying ?oat + 80 bps semi- annually. You know that the reference rate was 7% three months ago. 13
iii. 6 units of a 2-year zero coupon bond.
iv. 1 units of a 1.5-year ?oating rate bond with no spread paid semian- nually.

Recognize the importance of return on investment considerations in capital budgeting.

Understand the concepts of soft and hard capital rationing and their effects.

Grasp the methods for ranking and prioritizing investment projects.

Discern the differences and applications of various capital budgeting processes and their components.

---

Definitions:

Income Effect

The shift in income levels for either a person or the economy and its influence on the demand for specific goods or services.

Labor Supply

Refers to the total hours that workers are willing and able to work at a given wage rate.

Marginal Utility

The additional pleasure or advantage gained from consuming one further unit of a particular product or service.

Additional Hour

An extra unit of time beyond the standard or expected duration, often applied in contexts like work or study to represent overtime or extended periods.