traded.] C. Calculate the yields to maturity (or the interest/discount rates rn) from the discount factors n given above (i.e.‚ from the prices of the above zero coupon bonds). Plot these against the time to maturity t of the bonds. This is the term structure of interest rates or the yield curve based on zero coupon bonds. D. Calculate the yield to maturity (i.e.‚ the IRR) of bonds A and B assuming they trade at the prices quoted in part B. Which bond has a higher yield to maturity at these prices
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date t in the future‚ let Z(t; T ) be the value of $1 to be delivered at a later date T : (1.1b) Z(t; T ) = zero coupon bond‚ maturity T ‚ as seen at t. These discount factors and zero coupon bonds are the ones obtained from the currency’s swap curve. Clearly D(T ) = Z(0; T ). We use distinct notation for discount factors and zero coupon bonds to remind ourselves that discount factors D(T ) are not random; we can always obtain the current discount factors from the stripper. Zero coupon bonds Z(t;
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added to the bond’s principal at the end of every day (assume 365 days/year). A. Calculate the annual yield-to-maturity for each of the bonds. Annual yield-to-maturity is the discount rate that makes the present value of the bond’s promised payments equal to the bond price. Equivalently‚ yield-to-maturity is equal to the bond’s internal rate of return. Future Value of the Bond | | Annual Yield to Maturity | FV= | | PV * (1 + r)^t | | | | | | | | | | | | | | | | | |
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for creating the interest rate-sensitivity gap report? Limitations in the reliability of the interest rate-sensitivity gap as follows: Gap analysis does not capture basis risk or investment risk‚ is generally based on parallel shifts in the yield curve‚ does not incorporate future growth or changes in the mix of the business‚ and doest not account for the time value of money. Moreover‚ simple gap analysis (based on contractual term to maturity) assumes that the timing and amount of assets and
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both bonds. Coupon rate Time to maturity Yield-to-maturity Bond A 5% 5 yrs 7.2% Bond B 5% 25 yrs 7.2% Recalculate the bonds’ values if the yield to maturity changes to 9.4%. Which bond is more sensitive to the changes in the yield? Will this always be the case? When the yield-to-maturity is 7.2%‚ the bond prices are‚ respectively‚ 1 1 1.036 0.036 1 1.036 0.036 1 1.047 0.047 1 1.047 0.047 25 1000 1.036 1000 1.036 908.98 1 25 746.58 When the yield-to-maturity is 9.4%‚ the bond prices are
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In-arrear swaps are popular products in a steep yield curve environment to a fix rate receiver who thinks that short term rates will not rise as fast as the yield curve predicts‚ pocketing up the difference between the fix rate of the standard swap and the one of the in-arrear swap known as the pick up‚ while still paying low Libor resets. Usually‚ clients (corporates or financial institutions) receive fix and pay floating. In a steep yield curve environment‚ because of the delayed resets‚ an in-arrear
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MIT Sloan Finance Problems and Solutions Collection Finance Theory I Part 1 Andrew W. Lo and Jiang Wang Fall 2008 (For Course Use Only. All Rights Reserved.) Acknowledgements The problems in this collection are drawn from problem sets and exams used in Finance Theory I at Sloan over the years. They are created by many instructors of the course‚ including (but not limited to) Utpal Bhattacharya‚ Leonid Kogan‚ Gustavo Manso‚ Stew Myers‚ Anna Pavlova‚ Dimitri Vayanos and Jiang Wang. Contents 1
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61 Questions for Extra Credit Points. Due 12/16 (Wednesday) (Please show your work and provide your explanation) You need to show your work and explanations. Jotting down only the answers is not acceptable. If you do all 100 questions‚ you will get up to 3 extra points added to your final total score (after I determine your total score based on mid-terms‚ HWs‚ and the final). Chapter 5 1. You plan to analyze the value of a potential investment by calculating the sum of the present values
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Pizza Store Curve Theory February 10‚ 2013 Operations Management/OPS/571 Professor John Quesnel In this paper the approach is to understand the formulation of learning curve theory and objective is to maximize profits and increasing organizational performance for Mario ’s Pizzeria. The three fundamental assumptions followed by the learning curve theory are total time for completing a task decreases with the increased repetition‚ improvement percentage decreases
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FINS2624 S2 2012 Mockterm FAMILY NAME OTHER NAMES STUDENT ID SIGNATURE THE UNIVERSITY OF NEW SOUTH WALES SCHOOL OF BANKING AND FINANCE TIME ALLOWED: N/A To make sure that we can identify your exam if your student ID number is hard to read‚ please tick the boxes below to fill in your seven digit student ID number. Detailed instructions are on the next page. 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 M oc kt Page 1 of 21 Please see over er FINS2624 PORTFOLIO MANAGEMENT MOCK MID-TERM
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