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Just after the payment was made at the end of the first year, the continuously compounded spot one-year and two-year LIBOR rates are 8% and 8.5%, respectively. The value of the swap at that time is
You are analyzing two comparable (same credit rating, maturity, liquidity, rate) U.S. callable corporate bonds. The following data is available for the nominal spread over the U.S. Treasury yield cu
Stocks are commonly valued using the Price Earnings (PE) model. Evaluate the usefulness and effectiveness of the price earnings ratios when valuing stock.
A non-dividend-paying stock has a current price of $100 per share. You have just sold a six-month European call option contract on 100 shares of this stock at a strike price of $101 per share.
Draw 3 indiffernce curves in the "Expected Return-Standard Deviation" plane. One for a risk averse individual, one for a risk neutral person.
You have hedged the option exposure by buying 18,000 shares of the underlying. The next day, the stock price falls and the delta of the options falls to 0.54. In order to keep the options hedged, yo
What are the risk premium and expected rate of return on a stock with beta= 1.5? Assume a Treasury bill rate of 6% and a market risk premium of 7%.
What is the 99%, one-day expected shortfall (ES) of the portfolio?
What is the standard deviation of a portfolio's returns if the mearn returns are 15%, the variance of retruns is 184, and there are three stocks in the portfolio?
Extreme value theory (EVT) provides valuable insight about the tails of return distributions. Which of the following statements about EVT and its applications is incorrect?
Which of the following statements regarding extreme value theory (EVT) is incorrect?
Which of the following is most accurate with respect to delta-normal VAR?
What rate of return should a investor expect for a stock that has a beta of 0.8 when the market is expected to yield 14% and Treasury bills offer 6%?
Consider company ABC whose stock dividend per share next year is expected to be $30. What is the price s. Share of ABC?
Which of the following statements about VAR estimation methods is wrong?
Specifically the entire forward curve is more volatile during the wintertime. Which of the following statements concerning VAR is correct if the VAR is estimated using unweighted historical simulati
Aperture Science has stocks with a required rate of return of 12%. What is their price earnings ratio? Does this follow the rule of thumb of a PEG ratio of 1?
You are given the following information about the returns of stock P and stock Q: Variance of return of stock P = 100.0. Variance of return of stock Q = 225.0.
The historical simulation (HS) approach is based on the empirical distributions and a large number of risk factors.
At that point is it expected to have a steady state ROE of 10% and a plowback rate of 40%. If the required rate of return is 7% what is the price of the stock?
Does a Yield to Call differ more from the Yield to Maturity at lower interest rates or higher interest rates? Is Yield to Call higher or lower than the Yield to Maturity at those rates? Why?
In early 2000, a risk manager calculates the VAR for a technology stock fund based on the last three years of data.
It requires an initial investment of $470 million and has a NPV of $0.26 million. How would this project affect the Value of the firm?
The government is selling bonds with maturity of 5 years. The face value is $1,000 and coupons are paid annually. If the coupon rate is 3% and the yield to maturity is 8% what is the price of thi
Your firm has just issued five-year floating-rate notes indexed to six-month U.S. dollar LIBOR plus 1/4%. What is the amount of the first coupon payment your firm will pay per U.S. $1,000 of face va