- a. The spot price of the U.S. dollar is currently C $ 1.35/US $. If the risk-free interest rate on 1-year government bonds is 4% in Canada and 6% in the United States, what must be the forward price
- A bond with an annual coupon rate of 4.8% sells for $970. What is the bond's current yield?
- A put on XYZ stock with a strike price of $40 is priced a t $2.00 per share, while a call with a strike price of $40 is priced at $3 .50. What is the maximum per-share loss to the writer of the
- Suppose the U.S. yield curve is flat at 4% and the euro yield curve is flat at 3%. The current exchange rate is US $1.50 per euro. What will be the swap rate on an agreement to exchange currency over
- Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 12% and 16%, respectively. The beta of A is .7, while that of Bis 1.4. The T-bill
- John Irish, C F A, is an independent in vestment adviser who is assisting Alfred Darwin, the head of the Investment Committee of General Techno logy Corp oration, to establish a new pension fund .
- Suppose a hedge fund follows the excel following strategy. Each month it holds $100 million of an S&P 500 index fund and writes out-of-the-money put options on $100 million of the index with
- The difference between a Tax-Free Savings Account (TSFA) and a Registered Retirement Savings Plan (RRSP) is that in a TSFA taxes are paid on the income that is contributed but the withdrawals at
- Review Figure 20.1, which lists prices of various CAE options. Use the data in the figure to calculate the payoff and the profits for investments in each of the following June expiration options,
- Consider the futures contract written on the S&P/TSX 60 index and maturing in 6 months. The interest rate is 3% per 6-month period, and the future value of dividends expected to be paid over the
- Using historical risk premiums from Table 5.4 over the 1926-2016 period as your guide, what would be your estimate of the expected annual HPR on the BigNalue portfolio if the current risk-free
- Suppose that you sell short 250 shares of Weston (WN), currently selling for $80 per share, and give your broker $15,000 to establish your margin account.a. If you earn no interest on the funds in
- Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) = 11 %, σp = 15%, rf = 5%.a. Your client wants to invest a proportion of her total
- Tabulate and draw the investment opportunity set of the two risky funds. Use investment proportions for the stock fund of 0% to 100% in increments of 20%.
- Use the following data to solve this problem.a. What are cash flows from operating activities?b. What are cash flows from investing activities?c. What are cash flows from financing activities? Cash
- Consider the two (excess re turn) index model regression result s for A and B:RA = 1% + l.2RMR-square = .576Residual standard deviation = 10.3%Rn = - 2 % + .8 RMR-square = .436Residual
- On Connect, access the Excel tern- exceI plates for Chapter 12. There you will find five years of weekly returns for the S&P 500 and Fidelity's Select Banking Fund (ticker FSRBX).a. Set up a
- Use the Black- Scholes formula to find the value of a call option on the following stock: Time to expiration Standard deviation Exercise price Stock price Interest rate 6 months 50% per
- a. Look at the Mini-S&P 500 contract in Figure 22.1. If the margin requirement is 10% of the futures price times the contract multiplier of $50, how much must you deposit with your broker to
- Long-term Treasury bonds currently are selling at yields to maturity of nearly 6%. You expect interest rates to fall. The rest of the market thinks that they will remain unchanged over the coming
- Find the duration of a bond with a set- exceItlement date of May 27, 2020, and maturity date November 15, 2031. The coupon rate of the bond is 7%, and the bond pays coupons semi-annually. The bond is
- A firm pays a current dividend of $1.00 which is expected to grow at a rate of 5% indefinitely. If current value of the firm's shares is $35.00, what is the required return based on the
- In reviewing the financial statements of the Graceland Rock Company, you note that net income increased whilecash flow from operations decreased from 2017 to 2018.a. Explain how net income could
- If the stock price falls and the call price rises, what has happened to the call option's implied volatility?
- Suppose the value of the S&P/TSX 60 stock index is currently 955. If the 1-year T-bill rate is 3% and the expected dividend yield on the S&P/TSX 60 index is 3%, what should the 1-year
- The TMX has just introduced a single-stock futures contract on Brandex stock, a company that currently pays no dividends. Each contract calls for delivery of 1,000 shares of stock in 1 year. The
- Suppose the S&P/TSX 60 portfolio pays a dividend yield of 1 % annually. Its current value is 1,000. ~he T-bill rate is 4%. Suppose the S&P/TSX futures pnce for delivery in 1 year is 1,025.
- The Excel Application box in the chapter (available on Connect or through your course instructor) shows how to use the spot-futures parity relationship to find a term structure of futures prices,
- A Canadian exporting firm may use foreign exchange futures to hedge its exposure to exchange rate risk. Its position in futures will depend in part on anticipated payments from its customers
- Return to Figure 23.7. Suppose the CDOR rate when the second listed BAX contract matures in September is 2.5%. What will be the profit or loss to each side of the CDOR contract?
- You believe that the spread between Canadian short term interest rates and Canadian government bond yields is going to narrow in the coming month. How can you profit from such a change using the BAX
- Suppose that the value of the S&P 500 stock index is 1,600.a. If each futures contract costs $25 to trade with a discount broker, how much is the transaction cost per dollar of stock controlled
- A manager is holding a $1 million stock portfolio with a beta of 1.25. She would like to hedge the risk of the portfolio using the S&P/TSX 60 stock index futures contract. How many dollars' worth
- Suppose that the spot price of the euro in U.S. dollars is currently $1.30. The 1-year futures price is $1.35. Is the interest rate higher in the United States or the eurozone?
- If the spot price of gold is $1,500 per troy ounce, the risk-free interest rate is 2%, and storage and insurance costs are zero, what should be the forward price of gold for delivery in 1 year? Use
- Suppose that the price of corn is risky, with a beta of .5. The monthly storage cost is $.03, and the current spot price is $5 .50, with an expected spot price in 3 months of $5.88. If the expected
- Firm ABC enters a 5-year swap with firm XYZ to pay COOR in return for a fixed 6% rate on notional principal of $10 million. Two years from now, the market rate on 3-year swaps is COOR for 5%; at this
- A portfolio of stocks generates a -9% return in 2016, a 23% return in 2017, and a 17% return in 2018. What is the annualized return (geometric mean) for the entire period?
- Go to Kenneth French's data library site at http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html. Select two industry portfolios of your choice and download 36 months of data.
- Do you agree with the following claim? "Canadian companies with global operations can give Canadian investors international diversification." Think about both business risk and foreign exchange risk.
- Turn to Figure 2.11 and find the options for Canadian Natural Resources. Suppose you buy a September 22 call option with exercise price of $39, and the stock price at the expiration is $41.a. Will
- Turn to Figure 2.7 and find the li sting for Aecon Group.a. What was the closing price for Aecon?b. How many shares could you buy for $5 ,000?c. What would be your annual dividend income from those
- The bond equivalent yield of a 91-day T-bill is 5%. What is the price of the bill for a $10,000 face value?
- Find the after-tax return to a corporation that buys a share of preferred stock at $40, sells it at year-end at $40, and receives a $4 year-end dividend. The firm is in the 25 percent tax bracket.
- Turn to Figure 2.12 and find the S&P 60 futures.a. Suppose you buy one contract for December delivery. If the contract closes in December at a price of 900, what will your profit be?b. How many
- Compare call options and stop- buy orders.You have placed a stop-loss order to sell at $38. What are you telling your broker? Given market prices, will your order be executed?
- In Table 3.1 , what is the leading exchange in terms of value of stocks listed? What is the leading exchange in terms of trading activity? By Market Capitalization (in US$millions) Exchange NYSE
- You've borrowed $20,000 on margin to buy shares in Bombardier, which is now selling at $80 per share. Your account starts at the initial margin requirement of 50%. The minimum margin is 35%. Two days
- If you place a stop- loss order to sell 100 shares of stock at $55 when the current price is $62, how much will you receive for each share if the price drops to $50?a. $50b. $55c. $54.90d. Cannot be
- Suppose your expectations regarding the stock price are as follows:Use Equations 5.11and 5.12 to compute the mean and standard deviation of the HPR on stocks. State of
- The variable (A) in the utility formula represents thea. Investor's return requirementb. Investor's aversion to riskc. Certainty equivalent rate of the portfoliod. Preference for one unit of return
- Calculate the expected return and variance of portfolios invested in T-bills and the S&P/TSX Composite index with weights as follows:Consider historical data showing that the average annual rate
- Calculate the utility levels of each portfolio of Problem 10 for an investor with A = 2. What do you conclude?Data From Problem 10Calculate the expected return and variance of portfolios invested in
- Visit Professor Kenneth French's data library website at http://mba.tuck.dartmouth.edu/pages/faculty/ken.french /data_library.htrnl and download the monthly returns of "6 portfolios formed on size
- Look at the data in Table 6.7 on the average excess return of the Canadian equity market and the standard deviation of that excess return. Suppose that the Canadian market is your risky portfolio.a.
- Hennessy & Associates manages a $30 million equity portfolio for the multi-manager Wilstead Pension Fund. Jane Jones, financial vice-president of Wilstead, noted that Hennessy had rather
- What are the investment proportions in the minimumvariance portfolio of the two risky funds, and what is the expected value and standard deviation of its rate of return?
- Which statement about portfolio diversification is correct?a. Proper diversification can reduce or eliminate systematic risk.b. Diversification reduces the portfolio's expected return because it
- Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio.
- Input the data from the table into a spreadsheet. Compute the serial correlation in decade returns for each asset class and for inflation. Also find the correlation between the returns of various
- Convert the asset returns by decade presented in the table into real rates. Repeat the analysis of Problem 20 for the real rates of return.Data From Problem 20Input the data from the table into a
- When the annualied monthly percentage rates of return for a stock market index were regressed against the returns for ABC and XYZ stocks over a 5-year period ending in 2013, using an ordinary least
- Consider the following two regression lines for stocks A and B in the following figure.a. Which stock has higher firm -specific risk?b. Which stock has greater systematic (market) risk?c. Which stock
- Consider the following table, which gives a security analyst's expected return on two stocks in two particular scenarios for the rate of return on the market:a. What are the betas of the two
- If the simple CAPM is valid, which of the following situations are possible? Explain. Consider each situation independently. Portfolio Expected Return Standard Deviation A B 30% 40% 35% 25%
- Based on current dividend yields and expected growth rates, the expected rates of return on stocks A and B are 11 % and 14 %, respectively. The beta of stock A is .8, while that of stock B is 1.5.
- What must be the beta of a portfolio with E(rp) = 18%, if r1 = 6% and E(rM) = 14%?
- Within the context of the capital asset pricing model (CAPM), assume the following:• Expected return on the market= 15%• Risk-free rate = 8%• Expected rate of return on XYZ security = 17%•
- What is the expected return of a zero-beta security?a. Market rate of returnb. Zero rate of returnc. Negative rate of returnd. Risk-free rate of return
- Which of the following statements are true if the efficient market hypothesis holds?a. Future events can be forecast with perfect accuracy.b. Prices reflect all available information.c. Security
- Which of the following observations would provide evidence against the semistrong-form version of the efficient market theory? Explain.a. Mutual fund managers do not on average make superior
- A successful firm like Magna International Inc. (MG) has consistently generated large profits for years. Is this a violation of the EMH?
- Collect data on the DJIA for a period covering a few months. Try to identify primary trends. Can you tell whether the market currently is in an upward or downward trend?
- Define the following types of bonds:a. Catastrophe bondb. Eurobondc. Zero-coupon bondd. Samurai bonde. Junk bondf Convertible bondg. Serial bondh. Equipment obligation bondi. Original issue discount
- Consider a bond with a 10% coupon and with yield to maturity = 8%. If the bond's yield to maturity remains constant, then in 1 year, will the bond price be higher, lower, or unchanged? Why?
- A bond with a coupon rate of 7% makes semi-annual coupon payments on January 15 and July 15 of each year. The Wall Street Journal reports the ask price for the bond on January 30 at 100.125 . What is
- You wish to sell short 100 shares of XYZ Corporation stock. If the last two transactions were at $34.10 followed by $34. 15, you only can sell short on the next transaction at a price of a.
- You work for a private wealth management firm that follows an "external investment" model, whereby it decides which outside managers it should recommend to clients. One mutual fund that is a
- Many investors contend that it is not possible to evaluate a manager's investment performance properly without taking portfolio risk into account in some fashion. Nevertheless, simple (not
- Describe the two questions that an investor should consider when evaluating the investment performance of a portfolio manager. What tools are available to help the investor answer these questions and
- You are running an arbitrage-based hedge fund focusing on merger transactions. Company XYZ has just received a tender offer for $45 per share from the management of AcquisiCorp. For the past two
- Many investors in private equity transactions do so through participation in limited partnership arrangements. Explain how limited partnership structures are organized and illustrate your answer with
- As an investigator evaluating how well mutual fund managers select undervalued stocks or forecast market returns, discuss whether net or gross (before fund expenses) returns are more relevant.
- Bonds that are convertible into common stock are said to provide investors with both upside potential and downside protection. Explain how one security can possess both attributes. What implications
- On October 19, 1987, the stock market (as measured by the Dow Jones Industrial Average) lost almost one-quarter of its value in a single day. Nevertheless, some traders made a profit buying call
- The covered call option trading strategy combines a long position in the underlying security with the sale of a call option. Under what market conditions involving the future price of the underlying
- Assuming that a one-year call option with an exercise price of $28 is available for the stock of the DEW Corp., consider the following is a two-period price tree for DEW stock over the next
- Compare the differences and similarities of three different ways of protecting a stock portfolio against price declines over the next three months:(i) Short a three-month forward contract,(ii) Buy an
- The put-call-spot parity relationship involves four different securities: the underlying asset, a call option on that asset, a put option, and a T-bill. Explain how it is possible that one of those
- The asset-backed securities (ABS) market has grown in the past few years partly as a result of credit enhancements to ABS. Discuss how the credit rating of an ABS issue can be higher than the credit
- It is April 2, 2018, and you are considering purchasing an investment-grade corporate bond that has a $1,000 face value and matures on June 4, 2022. The bond's stated coupon rate is 4.60 percent,
- Consider price quotes and characteristics for two different bonds: At the same time, you observe the spot rates for the next three years: Demonstrate whether the price for either of these
- Why does the discounted cash flow valuation equation appear to be more useful for the bond investor than for the common stock investor?
- What is the purpose of bond ratings? What types of risk associated with a bond investment are these ratings designed to measure?
- Because of inflationary expectations, you expect natural resource stocks, such as mining companies and oil firms, to perform well over the next three to six months. As an active portfolio manager,
- Each month for the past several years, you have collected the monthly returns to an index of large-cap value stocks and an index of large-cap growth stocks. For the last two years, for both of the
- Shown below are the investment weights for the securities held in four different portfolios: three mutual funds and the benchmark index that each of those funds uses. a. Calculate the active
- Discuss three strategies active managers can use to add value to their portfolios relative to a benchmark index. What is the difference between a fundamental approach to active management and a
- Why have passive portfolio management strategies increased in use over time?
- A company goes public with an offering price of $18. There is a 7 percent underwriting spread. There is also a 15 percent overallotment option. The company is selling 25 million shares. The