Increase In Treasury Bond To A Normal Company Bond - 275 Words

What Is The Effect Of An Increase In Treasury Bond To A Normal Company Bond? (Case Study Sample) Content: Name:Instructor:Course:Date:Task 1What 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 2What is the yield for the three year and two year treasury securityFor the 3 year treasury bond Yr = y* + T + MpMp= maturity risk premium.Y = Number of years.Yr= Yield rateT = average inflation for the periodr = 3 + ((2+4+4)/3) + 0r = 6.33%For 2 year treasury bond Yr = y* + T + Mpr = 3 + ((2+4)/2) + 0r = 6% for the 2 yearTask 3It 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 r isks 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 4Calculate the portfolio betaTotal portfolio value= value of first stock + value of the second stockTotal portfolio value = $35,000+40,000= $75,000The weighted better of a stock= value of a stock / total portfolio value * the better factorFor the first investment portfolio given,Weighted beta = $...