An Institutional Investor Will Have to Pay Off a Maturing

question 49

Multiple Choice

An institutional investor will have to pay off a maturing bond issue in 3 years. The institution has 10 000 bonds outstanding each with a $1 000 par value. The institutional money manager is re-evaluating the fund's $100 million portfolio at this time. She is bullish on shares and wants to put the most she can into the share market but she cannot risk not being able to pay off the bonds. Three year zero coupon bonds are available paying 6% interest. What percentage of the total $100 million portfolio can she put in shares and still ensure meeting the bond payments?

• A)87.4%
• B)88.5%
• C)90.0%
• D)91.6%

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Definitions:

Coefficient Of Determination

A statistical measure, denoted as R², that represents the proportion of the variance for a dependent variable that's explained by an independent variable(s) in a regression model.

Coefficient Of Determination

A statistical measure that determines the proportion of the variance in the dependent variable that is predictable from the independent variable(s).

SSE

The aggregate of error squares, being the difference between model estimates and observed data, showing how well a model fits.