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Consider the daily simple returns of Johnson and Johnson stock from January 1990 to December 2003. The data are in the file d-jnj9003.txt or can be obtained from CRSP. Convert the returns into log returns in percentage.
(a) Build a GJR model for the log return series. Write down the fitted model. Is the leverage effect significant at the 1% level?
(b) Build a general threshold volatility model for the log return series.
(c) Compare the two TGARCH models.
A 6%, 3-year bond yields 12% and a 10%, 3-year bond yields 8%. Calculate the 3-year spot rate. Assume annual coupon payments.
Xeroz issed bonds that pay $77.50 in interest each year and will maturein 9 years. You are thinking about purchasing the bonds. You have decided that you would need to recieve a return of 7 percent on your investmeny. What is the value of the bond to..
Midwest Electric Company (MEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 9% as long as it finances at its target capital structure, which calls for 40% debt and 60% common equity. What is its cost o..
Harrison Corporation is interested in acquiring Van Buren Corporation. Assume that the risk-free rate of interest is 4% and the market risk premium is 6%. Harrison estimates that if it acquires Van Buren, the year-end dividend will remain at $2.30 a ..
You have $44,524.78 in a brokerage account, and you plan to deposit an additional $4,000 at the end of every future year until your account totals $270,000. You expect to earn 12% annually on the account. How many years will it take to reach your goa..
The 1-year interest rate in the U.S. is 10%; in Switzerland it is 12%. The current spot rate (dollars per franc) is $0.40. What do you expect the 1-year forward rate to be? Is the franc selling at a premium or discount? If the expected spot rate in 1..
Bui Corp. pays a constant $13.60 dividend on its stock. The company will maintain this dividend for the next nine years and will then cease paying dividends forever. If the required return on this stock is 12 percent, what is the current share price?
The key condition for equilibrium to occur in a market is: Which of the following is a reason why the demand curve for an item would be more elastic? Without taxes, the market price per bag of apples is $5. With a $2 tax per bag of apples, buyers now..
In the section on the yield to call, a bond pays annual interest of $80 and matures after ten years. The bond is valued at $1,147 if the comparable rate is 6 percent and the bond is held to maturity. What is the annual return earned by B if the bond ..
You have been offered the opportunity to invest in a project that will pay $4549 per year at the end of years one through three and $10305 per year at the end of years four and five. If the appropriate discount rate is 12.72 percent per year, what is..
Davis Industries must choose between a gas-powered and an electric powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments)...
Comparing two otherwise equal firms, the beta of the common stock of a levered firm is ____________ than the beta of the common stock of an unlevered firm.
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