What is the difference between the yield to maturity and the realized yield to

What is the difference between the yield to maturity

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25.What is the difference between the yield to maturity and the “realized” yield to maturity assumptions? Why might the realized yield to maturity be more realistic to any investor? Are either of these measures related to the current yield? If not, why?
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26.Using the formula for quoted market interest rates, build up the theoretical 20-market interest rate for a US government bond and for a 20-year BBB corporate bond. How does your theoretical rate build compare to today’s rates? Explain yourthoughts, and explain why they may be different. 27.What is a normal yield curve? What is an inverted yield curve? What is the yield curve specifically designed to represent? (Hint: Think government, mortgage, AAA, and municipal bonds.) What does the inverted US Treasury Bond yield curvegenerally suggest about the upcoming economic environment? 28.Describe the use of scenario analysis in the expected return generation exercise. What is the goal of scenario analysis? State the one word that academics generally use to describe the concept of risk. What metric(s), sometimes referred to as a second moment, is used by econometricians to describe this risk? 29.Explain the link between covariance, correlation, and diversification in portfolio theory. Why does Buffett suggest that “diversification is the only free lunch”? 30.Equity portfolio risk, per the academics, can be broken down into two components. What are the two? What risk(s), if any, remains if you purchase 30 semiconductor technology stocks? What risk(s), if any, remains if you purchase three different stocks from each of the S&P 500’s 10 sectors? 31.What function does the CAPM fulfill? What is the role of Beta? Explain the role that Beta plays in determining the return on a stock? If the market is up 10 percentand the Beta of the stock is 2, what is suggested regarding the expected return onthat stock? What if the market is down 10 percent; what then is the expected return on that stock? 32.Define the market risk premium with respect to the CAPM. Why is this necessary to include in the CAPM model? Historically, what level of premium have analysts used in the CAPM to represent the market risk premium? 33. What does the Efficient Market Hypothesis suggest about picking individual stocks for a portfolio? What does a market bubble, similar to that of 1998–2000 and concept technology, suggest about the efficient markets hypothesis? How may your answer to #26, part 2, link to the question of efficient markets? 34. The CAPM uses one Beta (i.e., a systematic market beta). Can more than one Beta be used in a multifactor capital asset pricing model? If yes, explain why and give two examples of such a model.
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  • Fall '14
  • AyeshaIqbal
  • Management, Financial Intermediaries, market risk premium, Bond Yield Curve

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