the yield to maturity for each bond. b. Plot the zero-coupon yield curve (for the first five years). c. Is the yield curve upward sloping‚ downward sloping‚ or flat? a. Use the following equation. [pic] [pic] [pic] [pic] [pic] [pic] b. The yield curve is as shown below. [pic] c. The yield curve is upward sloping. 8-4. Suppose the current zero-coupon yield curve for
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Predictions Riding the Yield Curve Timing Bets Based on Interest-Rates Level When Rates are Expected to Decrease When Rates are Expected to Increase: Roll-Over Strategies Bets on Specific Moves of the Yield Curve Barbell‚ Bullet‚ Ladder‚ Butterfly Other Semi-Hedged Strategies: Ladder Hedged against Slope Movement Active Fixed-Income Style Allocation Decisions Bond Picking: Trading on Market Inefficiencies Pure arbitrage opportunities Speculative arbitrage opportunities 2 1
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POINT/COUNTER-POINT: Has the Futures Market Created More Uncertainty for Stocks? POINT: Yes. Futures contracts encourage speculation on indexes. Thus‚ an entire market can be influenced by the trading of speculators. COUNTER-POINT: No. Futures contracts are commonly used to hedge portfolios‚ and therefore can reduce the effects of weak market conditions. Moreover‚ investing in stocks is just as speculative as taking a position in futures markets. WHO IS CORRECT? Use the Internet to learn
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frequencies: • Continuously compounded rate: 2.00% annualized rate • Continuously compounded return on maturity: 3.00% • Annually compounded rate: 2.10% annualized rate • Semi-annually compounded rate: 2.01% annualized rate You want to find an arbitrage opportunity among these rates. Is there any one that seems to be mispriced? Answer: This exercise tests your knowledge of dealing with interest rates with different compounding frequency. Given the interest rates‚ we can compute the discount factors
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Financial Management Mock Midterm Name___________________________________ 1) Which of the following organization forms accounts for the greatest number of firms? A) Limited Partnership B) "S" Corporation C) "C" Corporation D) Sole Proprietorship Section: 1.1 The Four Types of Firms 2) The person charged with running the corporation by instituting the rules and policies set by the board of directors is called A) the Company President. B) the Chief Operating Officer. C) the Chief Executive
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cash flow (in $) of CR7 as a function of the $/€ exchange rate will be given. Based on a long position in € (unhedged). $/€ Cash Flow 0.75 $ 750.000 1 $ 1.000.000 1.25 $ 1.250.000 1.50 $ 1.500.000 1.75 $ 1.750.000 B: Below the arbitrage-free 7-month forward price is calculated‚ also is shown the currency forward contract via replicating. CR7 is located in the US therefore‚ the company has two options: 1) the company can deposit their money on US saving account with a 1‚75% interest
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compounded). What is the one year (continuously compounded) forward rate starting in three years’ time? (2 marks) With the formula with continuously compounded‚ = =0.09 =9% The one year forward rate starting in three years’ time is 9% 1. The zero rate curve is flat at 6% pa with semi-annual compounding. What is the value of a FRA where the holder receives interest at the rate of 8% per annum with semi-annual compounding for a six month period on a principle of $1000 starting in 2 years? (2 marks) (conversion
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1101/125.241 ALBANY Internal Sc CP MASSEY UNIVERSITY ALBANY CAMPUS EXAMINATION FOR 125.241 INTRODUCTION TO INVESTMENTS Semester One – 2011 Time allowed: THREE (3) hours Answer ALL questions in Sections A and B INSTRUCTIONS This is a closed book exam Section A: Answer on the Scantron Card Provided Section B: Answer in the Blue Answer Book provided. Sc: Ensure that your name and identification number are entered on your Scantron Card in the first eight spaces. Record your answer on your
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well-ordered market there is a linear relationship between market risk and expected return. (1) RISK AND RETURN OF A SINGLE ASSET: Capital gains/ loss yield Current Yield Rate of Return=[Annual income/Beginning price]+[{Ending price-Beginning price}/ Beginning price] OR Total return = Dividend + Capital gain= Rate of return Dividend yield Capital gain yield R1 DIV1 P1 P DIV1 P P 0 0 1 P P P 0 0 0 (2) PROBABILITY DISTRIBUTION AND EXPECTED RATE OF RETURN: E(R)=∑(i=1 to n)=p(i) *R(i)
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Income Markets‚ Institutional Arrangements‚ Market Participants and Instruments‚ Investors Perspectives‚ Market Conventions‚ Debt Management & Monetary policies Lecture 2: Bond Valuation‚ Time Value of Money‚ Price and Yield Conventions‚ Bond Valuation using Yield Curve‚ Yield & return‚ horizon return; Valuation of Repo & Reverse Repo Lecture 3: Valuation of other Bonds: Floating Rate securities‚ Inflation index bonds‚ bonds with embedded options Lecture 4: Introduction to Bloomberg‚ Interpretations
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