Interest rates 1 answer b solution dprice 75 00082

This preview shows page 104 - 108 out of 177 pages.

Interest Rates1Answer: BSolution:%DPrice = [-7.5* 0.0082 * 100] + [(1/2)* 104 * 0.00822* 100] = -5.80%.2Answer: BSolution:
学服:02151210543咨询:4006008011邮箱:[email protected]网站:|高顿财经全球财经证书培训领导品牌For large changes in yield, duration underestimates the increase in price that occurs with a decrease in yield, andoverestimates the decrease in price that occurs with an increase in yield. For small changes in yield, the estimatedprice change and actual price change are very close to the same.3Answer: ASolution:Current 3-year rates have to equal current 1-year rates compounded by 1-year forward rates. Thus [1 + r(3)]3=(1.05)(1.0575)(1.0625), which generates a current 3-year rate of 5.67 percent.4Answer: CSolution:ΔV-%[-duration×(Δy)×100]+[0.5×convexity×(Δy)2×100]=[-8.38×(-0.01)×(100)]+[0.5×(91.93)×(-0.01)2×100]=8.84.5Answer: DSolution:Payoff = $5,000,000 (0.02 - 0.05)(0.25) = -37,500. The negative sign means the investor will make a payment of$37,500.6Answer: DSolution:The change in assets would be an increase of ($100)(8.5)(0.005) = $4.25 million, whereas the change in liabilitieswould be an increase of ($90)(6.5)(0.005) = $2.925 million. The net effect would be an increase in equity of$1.325 million.7Answer: DSolution:Since the bank has entered into the forward rate agreement to receive payment, and interest rates have increased, itwill have to pay on the contract. The amount it will have to pay is (0.0335 - 0.0362)($12 million)(0.25) = -$8,100.8Answer: DSolution:3e(-0.0125 × 0.5)+ 3e(-0.0235 × 1)+ 3e(-0.0258 × 1.5)+ 103e(-0.0295 × 2)= 105.909Answer: CSolution:For the quarterly compounded loan, EAY = (1 + (0.08 / 4))41 = 0.824. For the continuously compounded loan,we want to find the value of r that solves 1.0824 = er(1). r = ln(1.0824) = 0.0792.
学服:02151210543咨询:4006008011邮箱:[email protected]网站:|高顿财经全球财经证书培训领导品牌10Part 1)Answer: DSolution:First, we need to calculate the periodic rate, or 0.09 / 2 = 0.045.Then, the effective semi-annual rate = (1 + 0.045)21 = 0.09203, or 9.20%.Part 2)Answer: ASolution:First, we need to calculate the periodic rate, or 0.09 / 4 = 0.0225.Then, the effective annual rate = (1 + 0.0225)41 = 0.09308, or 9.31%.Part 3)Answer: CSolution:The continuously compounded rate = er1 = e0.091 = 0.09417, or 9.42%.Calculator Keystrokes for et:Using the TI BA, enter [0.09] [2nd] [ex] (this is the key with LN on the face of thebutton). On the HP, enter [0.09] [g] [ex] (this key is located in blue on the key with 1/x in white print).11Answer: ASolution:The effective annual yield (EAY) is equal to the annualized holding period yield (HPY) based on a 365-day year.EAY = (1 + HPY)365/t1. HPY = (EAY + 1)t/3651 = (1.125)45/3651 = 1.46%.12Answer: BSolution:Percentage price change = [(-) (effective duration)(Δy)]+[(1/2)(convexity)(Δy)2]= [(-)(9.80)(-0.015)(100)]+[(0.5)(130)(-0.015)2(100)] = 16.16Estimated price = 78.75(1+0.1616) = $91.48Determination of Forward and Futures Prices1Answer: CSolution:1015e(0.041 - 0.02)(0.25)= 1020.342Answer: BSolution:The formula is: F0= S0erT. Using this formula we calculate the forward price as 750e(0.032)(0.25)= $756.
学服:02151210543咨询:4006008011邮箱:[email protected]网站:|高顿财经全球财经证书培训领导品牌3Answer: CSolution:The cost of carry must be reduced by the dividends that are expected to be received while holding the underlyingstock.

Upload your study docs or become a

Course Hero member to access this document

Upload your study docs or become a

Course Hero member to access this document

End of preview. Want to read all 177 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
Winter
Professor
lintao
Tags
Capital Asset Pricing Model, The Land, Modern portfolio theory

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture