UNIT 6 Practice Problem Set  ANSWERS 1)Asset Stock A Stock B Riskfree Expected return 15% 10% 5% Standard deviation 60% 30%
The correlation coefficient between stock A and B is 10%. Find the equation for the optimal CAL.
E (rp ) rf wA (.15) (1 wA )(.10)
University of Florida Warrington College of Business Administration
FIN4243 Debt & Money Markets Instructor: Jongsub Lee Fall 2010
Final Examination: Total 100 points Time Limit: Maximum 2 hours
Name: Section Number: 3021 UFID Number:
Honor Code:
I will n
FIN 4243 Homework #1 Due on 9/14/2009 1. Give three reasons why the maturity of a bond is important.
2. A pension fund manager knows that the following liabilities must be satisfied: Years from Now Liability (in millions) 1 2.0 2 3.0 3 5.4 4 5.8 Suppose t
University of Florida
Warrington College of Business
Debt and Money Markets
Professor: Jongsub Lee
Exercises for Bond Pricing, YieldtoMaturity, and Rate of Return
Solutions
1) Amortization
A debt of $25,000 is to be amortized over 7 years at 7% interest
FIN 4243 Practice Midterm Fall 2009 Solution
Part I. Multiple Choice (Total 50 pts or 2 pts each) 1. The current price of a bond is 102.50. If interest rates change by 0.5%, the value of the bond price changes by 2.50. What is the duration of the bond? A.
FIN 4243 Practice Midterm Fall 2009 Due on 10/5/2009
Name: UFID: Useful Formula Time Value of Money Future Value Single CF Present Value
Multiple CFs
Annuity
Bond Pricing Formula Coupon Bond Zerocoupon Bond Measuring Yields Annualizing Yields EAY: effect
FIN 4243 Fall 2009 Midterm Solution (Version A)
Name: UFID: Section (circle one): 3027 or 3038
DO NOT BEGIN UNTIL YOU ARE TOLD TO DO SO.
1
Part I. Multiple Choice. 2.5 points per question. (Total 50 pts) 1. An investor paid a full price of $1059.04 each f
Chapter 6
The Risk of Changing
Interest Rates
61
Short Horizon Investors
0
1
Maturity
n
Time
P0
P1
y0
y1
P1, the price at Time 1, is important.
62
Long Horizon Investors
0
1
2
Maturity
n
Time
P0
C
C
C + PAR
Reinvest
Value at some distant date n is impor
Chapter 15
Bond Futures
151
Treasury Bond Futures
0
Delivery date
n
at least 15 years
$100,000 par
per contract
152
Cheapest to Deliver
There are many deliverable bonds.
This prevents anyone from buying up
all the deliverable bonds (cornering the
market
PROF. LIVINGSTON
FIN 4243
EXAM 2
FALL 201 3CODE A
1. Assume that the prices of oneyear, twoyear, threeyear, and fouryear strips with
$100 par values are $99.20, $98.00, $97.20, $96.30. What is the time two value of $100
received four years from now?
BOND ISSUERS
The United States Treasury
The U.S. Treasury performs primarily the
following func9ons.
Collects taxes.
Pays the bills of the government.
There is a decit if taxes are less than
payments. There is a
Chapter 4
Time Value of Money
41
Example of a Time Line
Points in time
0
1
1
2
2
3
3
Time
Periods
42
Flat Term StructureOne
Period
Time Line
0
1
1
1+R
1
1.10
43
Flat Term StructureTwo
Periods
Time Line
0
1
2
1
1+R
(1 + R)(1 + R)
44
Future value = (1 +
Chapter 13
Mortgages
131
Mortgages
Standard Fixed Rate
Variable Rate
Refinancing and Prepayments
Marketable Mortgages
132
Fixed Rate Mortgage
0
1
2
n
P
M
M
M
M
M
M
P=
+
+!+
2
1 + y (1 + y)
(1 + y)n
P = Principal
M = Periodic payment
P = M PVAn,y
Y = Int
Chapter 11
Put and Call
Options
111
Call Options
A call option is the right to buy an
underlying security at an exercise (strike)
price during a stated time interval.
C = Market value of the call option.
P = Market value of the underlying asset.
E = Exer
CREDIT DEFAULT SWAPS
AND CLEARINGHOUSES
1
Quarterly Payments for 5Year CDS
0
.25 .50 .75
y
4
y
4
y
4
1
y1
y
4
y
y
4
5
Years
Default
Y = Quoted Annual Rate
2
Investor K Buys ProtecIon from
Investor J on Firm X
FIRM
X
INVEST
FINANCIAL INTERMEDIARIES
$
Deficit
Sectors
Surplus
Sectors
Claims
$
$
Claims
Claims
Financial
Intermediaries
Advantages of Financial Intermediaries
Pooling of small savings.
Diversica>on of risks.
Economies of scale in monitoring
CHAPTER 8
1.
A oneperiod strip has a price of $86 and par value of $100. A twoperiod strip has a
price of $88 and par value of $100. Show the arbitrage opportunity.
Long
Short
Net
Cum Net
2.
1

+100
+2
+2
+100
+102
2

100
100
+2
A twoperiod bond ha
Chapter 7
Non Flat Term
Structure
Notation
uR0,1 = the spot interest rate observed at
time 0 (first subscript) and lasting one
period of time.
uR0,2 = the spot interest rate observed at
time 0 (first subscript) and lasting two
periods.
0
1
2
Time
R0,1
R0,
Chapter 14
Futures Contracts
141
Futures Contracts
Points in time
Now
0
Enter into contract
Delivery date
Short delivers commodity
and receives payment.
Long receives commodity
and makes payment.
142
Silver Futures
Points in time
Now
0
Enter into contra
DEBT AS PERCENT OF GDP
120%
100%
80%
60%
40%
20%
0%
U.S. Government Securities
Municipal Securities
Corporate and Foreign Bonds
Mortgages
Consumer Credit
TOTAL DEBT AS PERCENT OF GDP
350%
300%
250%
200%
150%
100%
50%
0%
Total Debt
Inter
uSuppose that a particular stock is
selling for $53 on the New York Stock
Exchange and simultaneously selling
for $50 on the Pacific Coast stock
exchange.
uOn arbitrageur can simultaneously buy
on the Pacific Coast exchange for $50
and sell on the New Yor
DETERMINANTS OF INTEREST
RATES
Loanable Funds Approach
Interest rates
Demand
Supply
i
Demand = Supply
Loanable
funds
The Demand for Funds
Business investment the sum total of
investment opportuniBes for all businesses in
th
FINANCE 4243
PROFESSOR M. LIVINGSTON
1.
Which of the following is a correct statement?
A.
B.
C.
E.
2.
FALL 2013 FIRST EXAM A
U.S. Treasury debt as a % of Gross Domestic Product was very high at
the end of World War II, declined until the mid1970s, and
FINANCE 4243 NAME
PROFESSOR M. LIVINGSTON
1.
Which of the following is a correct statement?
A.
B.
C.
E.
2.
FALL 2013 FIRST EXAM  A
U.S. Treasury debt as a % of Gross Domestic Product was very high at
the end of World War II, was roughly constant until t
Bond Pricing:
Flat Term Structure
Instructor: Jongsub Lee
Interest Rates for Different Maturities
Interest rates for different maturities are in general different
For example, interest rate that we use to discount a future cash
flow in 1year is different
ClassIntro
Instructor:JongsubLee
MeetingAgenda
n
Syllabus&ClassSurvey
n
Preliminaries
n
n
n
n
CompoundingandDiscounting
NetPresentValue
InternalRateofReturn
LawofOnePriceandNoArbitrage
FromYourPreviousCoursework
n
CashFlows
n
Asequenceofmoneyflows
n
n
n
T
FIN 4504
Sample Problems
1. The semistrong form of the EMH states that _ must be reflected in the current stock price.
A. all security price and volume data
B. all publicly available information
C. all information, including inside information
D. all cos
FIN4504
Equity Valuation
Mar 28 2017
1. Stock XYZ: earning at time 0 E0 = $2.50, b = 40%, ROE = 15%, riskfree rate is 3%, expected
return on market portfolio is 9%, the beta of stock XYZ is 1.5, and CAPM is valid here.
(1) Whats the required rate of retu
FIN 4504
Sample Problems
CAPM Practice Problems
1. *Find Beta*
Assume assets are fairly priced based on CAPM.
E ( r A ) =12 , A =25
E ( r B )=16 , B =45
E ( r C ) =10 , C =30
The riskfree rate
r f =4 . Also assume that stock C has a of 0.6.
Find the of s