Midterm exam INSTRUCTIONS:
capital market考试代写 Suppose the price of a 1-year T-Bill is $97.07. What is the 1-year spot rate rounded to the nearest basispoint?
Read these carefully before beginning the exam. capital market考试代写
(001 = 9:00am, 002 = 10:45am, 003 = 2:15pm, 004 = 4:00pm, and 005 = 5:45pm)
Please indicate the section for which you are registered.
This midterm is taken under the honor code. This means that the exam is to be done individually; no help can be accepted, solicited or given during the exam, and you may not discuss the exam with classmates of yours that have not yet taken it. The exam is open notes, so please use any written materials. You can also use a calculator and/or MS Excel spreadsheets but not communication (e.g., Internet, IM, or e-mail) software.
For the multiple choice questions, please circle the correct answer clearly. There is only one correct answer. No partial credit will be given for these questions. capital market考试代写
For the short answer questions, be sure to show all of your work. You will not receive credit unless work is shown on the test, but you will receive most of the credit if your methodology is correct even if your final answer is not. Use the extra pages at the end of the test if you need more space to show your work. If you use Excel or a calculator to solve the problems, ensure that you write the corresponding mathematical formula and the inputs used on the physical test.
The exam has a total of 150 points + 12 bonus points.
Solutions will be posted on Canvas.
Multiple choice questions (7 points each; 70 points total + 7 bonus)
Assumptions: Unless specified otherwise, assume bonds have a par value of $100 and pay coupons semi-annually. Assume interest rates are annualized but compounded semi-annually. Assume there is no risk-free arbitrage. Assume all assets’ returns are annualized.
1.Suppose the price of a 1-year T-Bill is $97.07. What is the 1-year spot rate rounded to the nearest basispoint?
e.None of theabove
2.Which portfolio below exactly replicates the cash flows of 100 Treasury notes with a 4% coupon and a maturity of 1.5years? capital market考试代写
a.104 1.5-year TreasurySTRIPS
b.Four 1-year T-bills, and 104 2-year TreasurySTRIPS
c.Two 1-year T-bills, and 102 2-year TreasurySTRIPS
d.eFour 6-month T-bills, four 1-year T-bills, and 104 1.5-year TreasurySTRIPS
e.Two 6-month T-bills, two 1-year T-bills, and 102 1.5-year TreasurySTRIPS
3.Which portfolio below uses leverage to obtain a Macaulay duration greater than 10 years? (Note: In all choices, the amount of portfolio equity is equal to$10M.)
a.Long position of $10M in 30-yearZeros
b.Short position of $10M in 1-year Zeros; long position of $20M in 7-yearZeros
c.Short position of $10M in 7-year Zeros; long position of $20M in 1-yearZeros
d.Short position of $10M in 30-year Zeros; long position of $20M in 15-yearZeros
e.Short position of $10M in 15-year Zeros; long position of $20M in 10-yearZeros
4.Suppose 10-year Zeros currently yield 4% and 8-year Zeros yield 3%. Today your firm will enter into a forward contract, locking in an interest rate to borrow $200M in eight years for a period of two years. What interest rate should your firm expect topay?
e.All of the above answers are wrong by more than 10 basis points(0.1%) capital market考试代写
5.Suppose your firm needs to raise $100M in debt. The LIBOR yield curve is flat at 2%, and you believe that it will shift up in parallel in the near future. Based on this belief, which of the following bonds should your firm issue? (Assume that your firm will fully repay its)
a.10-year fixed rate debt with a 2%coupon
b.20-year fixed rate debt with a 2%coupon
c.10-year floating rate debt with a 0% margin overLIBOR
d.20-year floating rate debt with a 0% margin overLIBOR
e.Your firm should wait until rates increase before issuingdebt
6.Suppose that your portfolio consists of $50M in cash and a $10M short position in5-year Zeros. Which trade would immunize your portfolio against an interest rate risk today? capital market考试代写
a.Short $10M in 10-year Zeros
b.Short $5M in 10-year Zeros
c.Buy $5M in 10-yearZeros
d.Buy $20M in 10-yearZeros
e.Buy $50M in 10-yearZeros
7.Suppose Toys R Us issues 6-month zero-coupon debt (i.e., commercial paper) having a par value of $110M. This commercial paper sells for $100M at issuance. You expect that Toys R Us will fully repay its commercial paper with probability 0.90 and will repay 70% of par value with probability 0.10. Based on this forecast, what is the annualized expected return of thedebt?
e.None of the above is within 0.1% of the expected return
8.Suppose AAPL stock is priced at $100 per share, but you think its intrinsic value is $120. The stock’s CAPM beta is 0.8. Assume that the risk-free rate is 1%, the market risk premium is 5%, and your required return is given by the CAPM. If you expect the stock’s price to converge toits value one year from now, what is the stock’s one-year expected return?
9.Suppose that the head of equities investing at a large pension fund requires a minimum expected return of 8% and a maximum volatility of 30%.
Her beliefs about expected returns, volatilities, and correlations for two large stock markets appear below. Which portfolio, if any, meets (or beats) her expected return and volatilityrequirements?
|Market||Expected Return||Volatility||Correlation with US|
b.50% US; 50%China
c.30% US; 70%China
d.10% US; 90%China
10.Suppose that the CAPM is correct and that investors’ risk aversion is constant. What would you expect to happen to the market equity premium if market volatility doubles from 20% to 40%? (Hint: To check your logic, it might be helpful to assume a particular value for risk aversion—e.g., A = 1—though this assumption is not)
a.Equity premium would decrease by a factor offour
b.Equity premium would decrease by a factor of two (i.e.,half) capital market考试代写
c.Equity premium would remain thesame
d.Equity premium would increase by a factor of two (i.e.,double)
e.Equity premium would increase by a factor offour
11.Suppose Facebook stock’s volatility is 40%. The stock’s beta is 1.20, andthe volatility of the stock market is 20%. What is Facebook’s idiosyncratic volatility?
Short answer question 1 (40 points total): capital market考试代写
You will analyze a 5-year Treasury Note with a coupon rate of 3.0%. Suppose that the yield curve is flat at 2.0%.
a.(8 points) Calculate the price and yield-to-maturity of theT-Note.
b.(12 points) Calculate the Macaulay and modified durations of theT-Note.
c.(8 points) Suppose that the entire spot yield curve shifts up in parallel by 0.50%. Based on the bond’s duration, what would be the approximate new price of theT-Note?
d.(8 points) If the spot curve shifts up by 0.50% as in (c), what is the T-Note’s actual new price?
e.(4 points) Consider the duration of a $100k portfolio consisting of these T-Notes and cash. How much of the portfolio would need to be invested in cash to achieve a target Macaulay duration of 2 years? (Assume the yield curve is still flat at 2.0% in this)
Short answer question 2 (40 points + 5 bonus points). Suppose you are given the following data. capital market考试代写
Assets A and B are the only risky assets in the economy with positive market capitalization. The correlation between assets A and B is 0.50. Fill in the blank cells in the above table as you progress through the problem, ensuring that all six blank cells are filled when you are done. Use at least two decimals of precision for all numbers, except market capitalization.
a.(4 points) What are the weights of Assets A and B in the market portfolio—i.e., the value-weighted portfolio consisting of all riskyassets?
b.(8 points) What is the market risk premium in thiseconomy?
c.(8 points) What is the volatility of the marketportfolio?
d.(8 points) What are the CAPM alphas of Assets A andB? capital market考试代写
e.(2 points) Are the CAPM predictions of assets’ expected returns correct? [A “yes” or “no” answer is]
f.(6 points) What is the highest Sharpe ratio that an investor can obtain in thiseconomy?
g.(6 points) What are the optimal portfolio weights on Assets A and B and the risk-free asset for an investor with mean-variance preferences and a risk aversion of 3.0?
h.(3 points) Remember to fill in all remaining blank cells in the table. No need to show any work for the remaining