Fall 2008 Midterm 1 Version A

Fall 2008 Midterm 1 Version A - Version Fall20OB I Midterm...

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Version I Business I71a Fall20OB Midterm Examination I Instructions andtqlas: I. Plag-rc pts your name on BOTH fhc scarbon end this exrr:r If your nsnr is missing from citlrr, yorl wi[ rcccivc ZERO on the cxrm - no exccption rrd no changes eftqr*rrds. IL Thjs is a clorcd+oolq closcd-notes cxem. Do not ccnsuh otfrdrs. You rnay !.ls€ s calculrtor (.not a c+ll ptmrre). n. Tlnrc is one cored anrrrer to eech problcrr. Multiplc Nnrwcrs rccsivc zero point- IV- Irldmncirl inetitrtion; F€d=Fcdsrrl Resavc Systcna YTM - lcld to rnlurity; PV: preseut wlrre V. Unless ry€ctficd othcnrise, t. irwesfors mcxirniz€ their nst *orth (i.c., they arr "refional*) and firms nnximirc thcir common dprcbolden' r*t wordt. b. all rnrksts ere cfficicst. c. frrrm sr typical of thc irdusry in vhich trcy arcratc. d. rypmxinations should bc mudcd to 2 digfu after thc dcciilrrl. c. e dcbt sccrnity ha.s a facc (prr) rnlue of $1,00O This exam has 3i cptr;stiotts 1. Wcobecrvcthecunsntratc onone-year loantoLr-4.sylandtherateon two-yar loantofu6%. What does fu rosket axpect the one-vear loan ts be next year (undcr thc lJr:biased Expcctations Thd>ry), rormdcd !o I digit after the dccinai? ll ry : ( * r., t,5 (a) 5.3% ,\ - 1T (b,7_s% {c) Sorne figurr hstween 4"5% and 6?6, but cannot he detcrmined more precisely (d) Csnnot ir detcrmincd at all siucc it is a funrrc rare 2. Yield cuwe rpftrs to ' ' fe) The plot of yipl$to mat'urity of expccted interrst rares against maturity $) Hor*'muc.b you cfir earn by invcsting in sfocls versus bonds (c) The relationship betwecn spot intcrest rates and expectod ifiter€st ratcs (d) Th€ plot ef yieH to.orturity of spot iner'est reter ags.itlsf matruity (e) Noae of thc above J. Everything elsc the same, bonds that lr,Evc shortcr maurities ar€ more sensitive to interast rare variations than hoods that have longer maturities. 'ta) True (b) Fatsc
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4. F.iglit n*w infietdcn- h:ased +m *ne of several rm,m$i*.re*, is .4.{B'i m"jaflatien t* a*'ernge 3-iVu ipetr.rs*,en *ew erql n*xr vear. 'Ihe rstwtr *n ;* i t1,. is errye**d t* he 6*rii i-*er rite nsxt y'*ef," What is th* r**tr ref*r'n ys$ expefr *n tFris "timrr.it.y? (ttj 2+,,a rt*.. { € erl \.('? LJ-.J./4 r-r") I !T Ql. / J. il {{\' tui r},-) / l i*) 3.5 F'* A b+nd, wrth a p*r tulu'e of S 1,ffi prys intmest ennually ita eeugcn rate tlf 8?+ and it hea jiesi p*ard irs latcs. **irp{ir:" The trcM has ? ye*i* lclft to rnetuxe Hnd if$ vieid tr: mefmjfy L* Wa The cuireer me-rket p::fcc *i:th:,r h*cC i.E {ji} 'b l"iH}i} {b} $,9fd2,.-$I' il-.;",,: ,.,'rr;l :;.]]: ii1 ,i: 11' !.
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