Eon5600Problemset3

# Eon5600Problemset3 - ECONOMICS 5600 PROBLEM SET 3 1 WHAT...

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Unformatted text preview: ECONOMICS 5600 PROBLEM SET 3 1 WHAT ARE THE MAIN RISK CHARACTERISTICS OF FINANCIAL ASSETS? EXPLAIN 2 a) SUPPOSE YOU BUY A EUROPEAN GOVERNMENT BOND OF FACE VALUE OF RATE OF RETURN ON THIS BOND? {YOU CAN USE EXCEL TO DERIVE YOUR ANSWER). b) DOES THE BOND ASSET HAVE SAFETY AS A SECURITY AT THE SAME TIME THAT AS AN ASSET THE BOND IS RISKY? EXPLAIN. 3 CONSIDER THE FOLLOWING EXAMPLE BELOW WHICH GIVES THE MONTHLY THE "FREQUENCY FUNCTION" IN EXCEL TO CALCULATE AND ILLUSTRATE THE "FREQUENCY DISTRIBUTION OF THE RETURNS OVER THE PERIOD COVERED. OK! (RETURN). YOU ARE HERE DEALING WITH A "VECTOR OF RETURNS" AND SO THIS WILL ALLOW EXCEL TO USE THE RETURNS DATA AS A VECTOR ( MATRIX WITH A SINGLE ROW OR COLUMN). THIS WILL ALLOW YOU TO CALCULATE AND DISPLAY THE FREQUENCY DISTRIBUTION OF IBM STOCK RETURNS OVER THE PERIOD INCLUDED IN THE DATA. ALSO, NOTICE THE FORMULA FOR DERIVING THE RETURNS FROM THE STOCK PRICE DATA FOR EACH DATE. FOR EXAMPLE THE FIRST RETURN IS GIVEN AS (89.39/95.08) - 1, OR IS GIVEN IN DISCRETE CHANGE RATHER THAN IN CONTINUOUS CHANGE ( THE LATTER OF WHICH WOULD BE A CHANGE IN NATURAL LOGARITHMS OF RETURNS). YOU WILL NOTICE THAT THE MONTHLY RETURNS RANGE FROM A -20.5% TO ABOUT + 9%. SO LAY OUT A COLUMN OF RETURNS, SAY FROM -22.0% AND INCREMENTAL WHOLE NUMBER PERCENT RETURNS, SAY AS A COLUMN OF RETURNS, UP TO 9%. THEN APPLY THE "FREQUENCY" FUNCTION TO THE ACTUAL RETURNS VECTOR AND THE WHOLE NUMBER RETURNS IN VECTOR CALCULATION USING THE FUNCTION AS, FOR EXAMPLE, =FREQUENCY(DRAG THE COLUMN OF ACTUAL RETURNS, DRAG THE COLUMN OF WHOLE NUMBER RETURNS YOU DEVELOP), THEN CONTROL+SHIFT+ RETURN, AND YOUR FREQUENCY DISTRIBUTION SHOULD BE CALCULAT SEE PAGES 269 - 270 OF YOUR TEXT FOR FURTHER CLARIFICATION ON CALCULATING THE SOLUTION TO THIS PROBLEM Date IBM stock price 3-Jan-07 95.08 1-Feb-07 89.39-5.98% 1-Mar-07 90.66 1.42% 2-Apr-07 98.31 8.44% 1-May-07 102.93 4.70% 1-Jun-07 101.62-1.27% 2-Jul-07 106.84 5.14% 1-Aug-07 113.07 5.83% 4-Sep-07 114.14 0.95% 1-Oct-07 112.52-1.42% 1-Nov-07 102.28-9.10% 3-Dec-07 105.12 2.78% 2-Jan-08 104.15-0.92% 1-Feb-08 111.14 6.71% 3-Mar-08 112.39 1.12% 1-Apr-08 117.82 4.83% 1-May-08 126.85 7.66% 2-Jun-08 116.17-8.42% 1-Jul-08 125.43 7.97% 1-Aug-08 119.77-4.51% 2-Sep-08...
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## This note was uploaded on 02/15/2012 for the course ECON 5600 taught by Professor Will during the Spring '11 term at Utah Valley University.

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Eon5600Problemset3 - ECONOMICS 5600 PROBLEM SET 3 1 WHAT...

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