Financial Markets
Jason Hurley
FINA 3144, Dr. Glegg
Financial Markets Excel Project
Part 1:
1. The bond prices are all different due to the coupon payments and the years left to maturity all being different for each bond. Since each bond’s coupon rate is different, it has a direct effect on the coupon payments for each bond, which makes each bond price different.
2. The duration for each bond tells you what is the total percentage increase or decrease each year for the weighted values of each bond. For bond B and C, the weighted maturity for each year keeps increasing while bond A’s weighted maturity stays in a consistent range for multiple years.
3. With an expected percentage change relating to the duration and nominal interest rate of 3.54%, and a constant inflation rate, bond A will be the most sensitive to the change in interest rates.
Part 2:
1. Bond A has the highest expected return of 11.48%. This is due to the high yields that bond A has for each probability, which in turn gives a higher expected return.
2. The riskiest bond would be bond A, due to the expected return of 11.48% and the standard deviation of 8.06% being the highest of the three. The higher the expected return and standard deviation, the riskier the asset will be.
Part 3:
1. With each company having a loss in capital within the time period of January 3rd, 2007, through March 9th, 2009, Freddie Mac has the biggest loss with a drop of -99.41% in daily closing price.
Part 4:
2. The bank that Imani should choose to invest in would be Carnival. If Imani were to invest with Carnival, her future value of $57,963.70 would be the highest of each of the banks she can choose from.
3. The higher the annual rate, the higher her returns will be in 5 years. Since Carnival has the highest annual rate of 3%, her future value will be the highest if she were to invest with that financial
FINA 3144, Dr. Glegg
Financial Markets Excel Project
Part 1:
1. The bond prices are all different due to the coupon payments and the years left to maturity all being different for each bond. Since each bond’s coupon rate is different, it has a direct effect on the coupon payments for each bond, which makes each bond price different.
2. The duration for each bond tells you what is the total percentage increase or decrease each year for the weighted values of each bond. For bond B and C, the weighted maturity for each year keeps increasing while bond A’s weighted maturity stays in a consistent range for multiple years.
3. With an expected percentage change relating to the duration and nominal interest rate of 3.54%, and a constant inflation rate, bond A will be the most sensitive to the change in interest rates.
Part 2:
1. Bond A has the highest expected return of 11.48%. This is due to the high yields that bond A has for each probability, which in turn gives a higher expected return.
2. The riskiest bond would be bond A, due to the expected return of 11.48% and the standard deviation of 8.06% being the highest of the three. The higher the expected return and standard deviation, the riskier the asset will be.
Part 3:
1. With each company having a loss in capital within the time period of January 3rd, 2007, through March 9th, 2009, Freddie Mac has the biggest loss with a drop of -99.41% in daily closing price.
Part 4:
2. The bank that Imani should choose to invest in would be Carnival. If Imani were to invest with Carnival, her future value of $57,963.70 would be the highest of each of the banks she can choose from.
3. The higher the annual rate, the higher her returns will be in 5 years. Since Carnival has the highest annual rate of 3%, her future value will be the highest if she were to invest with that financial