Department of Finance
FNCE30001 Investments
Semester 2, 2015
Assignment 9 Partial Solutions: Term Structure of Interest
Rates
PART A
Problem 1*
P1.1
Uncertain. Lower inflation usually leads to lower nominal interest rates (remember
Fisher equation). Never
Investments
Lecture 10 - The Term Structure
Zero rate (spot rate): the interest rate for the period from
today (time 0) to a future date. Symbol: z
Future rate: the interest rate, set today (time 0), for the
period from one future date to another future d
Investments
Lecture 11 - Managing Fixed Income
Bond Portfolio Risks
Bond investment often called "fixed income"
For many bonds, most properties are fixed: coupons, maturity, par value
Yield is not fixed, but varies with the market
Price varies with th
Investments
Lecture 5 - Arbitrage Pricing Theory and Multifactor Models of Risk and Return
Single Factor Model Equation
where;
ri =
Return for security i
i =
Factor sensitivity, factor loading, for factor beta
F=
Surprise in macro-economic factor (can be
Investments
Lecture 7 - Performance Appraisal
The Fundamental Issue in Performance Appraisal
My portfolio has achieved a return of x%. Is this good or bad?
The fundamental issue is: good or bad compared to what?
o Answer: compared to the performance tha
TUTORIAL 2, COUPON BONDS
INVESTMENTS
Assumptions:
1. Interest rates are non-negative
2. Reinvestment rate equal to YTM (unless stated otherwise)
3. Coupon has just been paid (unless stated otherwise)
Part A
a.
Show the cash flows for the following four bo
Investments
Lecture 9 - Coupon Bonds
Pricing a Fixed-coupon Bond
A (fixed) coupon bond generates a set of future cash flows, unlike the zero which
generates just one future cash flow. So, a coupon bond is like a portfolio of zeros.
Bonds from the same i
Investments
Lecture 2 - Optimal Risky Portfolios
"The most fundamental decision of investing is the allocation of your assets"
Short Sale - The sales of shares not owned by the investor but borrowed through a broker
and later repurchased to replace the lo
lOMoARcPSD
Exam 10 September 2015, questions and answers
Investments (University of Melbourne)
Distributing prohibited | Downloaded by Ka Man Carrie Chan ([email protected])
lOMoARcPSD
Seat
No:
Student No:
(Do NOT write your name anywhere on
Investments
Lecture 3 - The Capital Asset Pricing Model
The Markowitz portfolio selection model:
derives the efficient frontier of risky assets
provides a framework for optimally combining risky funds
does not provide guidance with respect to the risk-ret
Investments
Lecture 8 - Fixed Income Securities
Definition: Four characteristics of fixed income security (note, bill, bond, debenture) are:
1. the issuer (debtor, borrower) promises to repay the investor (lender, bondholder)
2. the amount borrowed (princ
Department of Finance
FNCE30001 Investments
Semester 2, 2015
Assignment 10 Partial Solutions: Managing Fixed-Income
Portfolios
PART A
Problem 1*
P1.1
Computation of duration:
1. yield to maturity = 6%
(1)
(2)
(3)
Time until
(4)
Payment
payment
Payment
(ye
Department of Finance
FNCE30001 Investments
Semester 2, 2015
Assignment 9: Term Structure of Interest Rates
Note: Solutions will be provided on the LMS for questions with a * next to them. The remaining
questions will be discussed during tutorials, to the
S,t*\ Lo*, the Sgvlrirrvrr! d o. brn&'s pn K) o .l*qe ivris yiei,l is
*"er<u\ rel,"[email protected] La tlt Y&r\ ot which tb- honl c-^-vter$ i5
selfi n3.
t
fu
S-*,.,*,or,
L,
T,Yne
L*.g
hteK.r \qrex l*g*r.,&
@ vn^etct(ttl ,[cfw_,r,
*,
iiq
o^ vo.e. Lcfw_^w 6)
. \n,u.q,(
Question A1
Consider a 7-year 12% coupon bond, with a par value of $100, and which has just paid a
coupon. The yield curve is flat at 9.25% pa. Coupons are paid annually.
a. Calculate the duration. Use the duration to make a first approximation of the per
Tutorial: Capital Asset Allocation - Solution Set
Notes:
Formulae to be used in this tutorial:
E(rq)=ps*rs
2
Var(rq) = E[(rs E(r) ]
Sharpe ratio: Sh =
E(r) rf
r
Utility: U = E(r) 0.5A 2
Definition:
Sharpe ratio: A reward-to-variance ratio that measure
Tutorial: Asset Allocation
Investments
Problem 1
Part B
(Exercise n. 8 in the book). A fund manager is considering three managed funds. the
first is a share fund, the second is a long-term government and corporate fund and
the third is a cash fund that yi
Factor-based investing
Vanguard Research
Scott N. Pappas, CFA; Joel M. Dickson, Ph.D.
n Factor-based investing is a framework that integrates factor-exposure decisions into the
portfolio construction process.
n In this paper, we review, discuss, and ana
Why Fixed-income?
What is a Fixed Income Security
Features of Debt Securities
Zero Coupon Bonds
Credit Risk
Conclusions
Intro to Fixed Income
and Zero Coupon Bonds
Antonio Gargano
Investments
University of Melbourne
Semester 1
1 / 40
Why Fixed-income?
Wha
Overview
Factor Models
APT: Assumptions
APT: Implications
APT: Examples
Real World
Conclusions
Multifactor Models
and
the Arbitrage Pricing Theory
Antonio Gargano
Investments
University of Melbourne
1 / 50
Overview
Factor Models
APT: Assumptions
APT: Impl
Overview
Assumptions
Implications
Valuation
Real World
Problems
Is the CAPM a good model?
Conclusions
The Capital Asset Pricing Model
Antonio Gargano
Investments
University of Melbourne
1 / 54
Overview
Assumptions
Implications
Valuation
Real World
Problem
Disclaimer
Information provided is for educational purposes and does not constitute financial product advice.
You should obtain independent advice from an Australian financial services licensee before making
any financial decisions. Although ASX Limited A
Investments:
Problem Set 1
Zero Coupon Bonds & Credit Risk
For all questions, assume that interest rates are non-negative.
Problem 1
1. Calculate the price of zero coupon bond, that matures in 10 years with
a par value of $100 if the zero rate is 5% per a
Tutorial 8
Part A
Question A1
Consider a single-index model. The alpha of a stock is 0%. The return on the market index is
12%. The risk-free rate of return is 5%. The stock earns a return that exceeds the risk-free rate
by 7% and there are no firm-specif
Tutorial 7
Part A
Question A1
You would like to construct a portfolio composed of the following two securities:
Stock
Expected
Standard Deviation
Return
of Returns
A
22%
31%
B
8%
17%
Suppose the two assets are perfectly negatively correlated and the risk-