Longest-maturity cat bond | Business & Finance homework help

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

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12.B

1. Copy from the link source and paste into your own Excel sheet the 1928-2013 annual data series for S&P 500 stocks, 3-month T-bills, and 10-year T-bonds. 

 

2. Apply Excel function =AVERAGE(…) to compute the 1928-2013 annual average return for S&P 500, 3-month T-bills, and 10-year T-bonds, respectively.  Note: Only do so on % return data series, but not on $ amount data.



 

3. Apply Excel function =STDEV(…) to compute the 1928-2013 standard deviation (i.e., “total risk”) for S&P 500, 3-month T-bills, and 10-year T-bonds, respectively.  Note: Only do so on % return data series, but not on $ amount data.

 

10.B

 

We have foundthat the longest-maturity CAT bond (01-March-2097) has a most current “yield to maturity” of 5.236% per year, and thus this 5.236% (per year) on CAT bond is used as the required return for your long-term-debt-financed capital investment.

Based on the required return (financing cost) of 5.236%, if CAT applies the IRR rule, shall CAT purchase the order entry system or not?

Based on the required return (financing cost) of 5.236%,if CAT applies the NPV rule, shall CAT purchase the order entry system or not? (Show the resulting NPV)

 

 

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