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a. Discuss how each of the following theories for the term structure of interest rates could explain an upward slope of the yield curve:
(1) Pure expectations (unbiased)
(2) Liquidity preference (term premium)
(3) Market segmentation
The following are the current coupon yields to maturity and spot rates of interest for six
U.S. Treasury securities. Assume all securities pay interest annually.
YIELDS TO MATURITY AND SPOT RATES OF INTEREST
Term to Maturity
Current Coupon Yield to Maturity
Spot Rate of Interest
1-year Treasury
5.25%
2-year Treasury
5.75
5.79
3-year Treasury
6.15
6.19
5-year Treasury
6.45
6.51
10-year Treasury
6.95
7.10
30-year Treasury
7.25
7.67
b. Compute, under the pure expectations theory, the two-year implied forward rate three years from now, given the information provided in the preceding table. State the as- sumption underlying the calculation of the implied forward rate.
Suppose the investor had constructed his portfolio by taking a short position in Security H equal to 20% of his initial funds. Calculate the rate of return on the portfolio for January.
What is the covariance and co-efficient of correlation between stock L and M? What is the portfolio risk of a portfolio made up of 60 percent of land 40 percent
Portfolio Assignment
Identify and rate an FIVE skills & competency areas and evaluate your own current skills and competencies against professional standards and organisational objectives.
Calculate the correlation coefficient between two series: the EUXDIPC ratio and the DJEURST for the same month (i.e., both from month t for a given pair of observations).
Had to list 5 steps for the chosen strategy ; include a formula on how to compute - the strategy had to counter the over value and under value of the French stock.
What are the similarities and differences between forward and futures contracts? What do the payoff and profit diagrams look like for forward and futures contracts?
Find the value of a European call option with an exercise price of $50 and find the value of a European put option with an exercise price of $50, using the binomial approach
What is the required rate of return for a portfolio which consists of $14,000 invested in Stock X and $6,000 invested in Stock Y?
1. during the past five years you owned two stocks that had the following annual rates of returnyear stock tnbsp stock
Describe generally what a best and worst case scenario analysis is and why we conduct them and explain the results presented in your table to a policy-maker.
Calculate (1) the overall return to the benchmark portfolio, (2) the overall return to Manager A's actual portfolio, and (3) the overall return to Manager B's actual portfolio.
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