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FIRE 317 ? Homework 4 Assignment

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Question;Problem # 1: You are given the following information for Stock A and Stock B.Rate of Return on stock if this demand occursDemand for the company?sProbability of thisFirm AFirm Bproductsdemand occurringStrongp18%12%Normal0.610%8%Weakq-21%1%You created a portfolio by investing $3,000 in stocks of firm A and the remaining $7,000 of your wealth in stocks of firm B. The expected return of your portfolio is 7.382%. What is the correlation coefficient of the returns of firm A and returns of firm B? In addition, what is the portfolio variance of your created portfolio?Problem # 2: Seven months ago, Ms. Peeru purchased 400 shares of XYZ Inc. stock on margin at a price per share of $36. The initial margin requirement on her long account is 60 percent and the maintenance margin is 40 percent. The call money rate is 3.6 percent and she pays 2 percent above that rate. In addition, on the same day, Ms. Peeru also short sold 200 shares of PQR Inc. stock as price per share of $20. The initial margin requirement on her short account is 70 percent and the maintenance margin is 40 percent. She will earn interest at 3% per annum compounded annually on her initial margin deposit of short account. Today at the end of the trading day, she covered both positions, when the market pricesof XYZ Inc. and PQR Inc. were $38 per share and $19 per share, respectively. Assume that she has not received any margin call in between. What is her annualized rate of return or her holding period return on an annualized basis?Problem # 3: At the beginning of a trading day, you short sold 500 shares of Jasper stock at $41 a share, 100 shares of Tasper at $10 a share, and 200 shares of Casper at $20 a share. Your initial margin is 60% and the maintenance margin is 40 percent. Assume that your initial equity is equal to the initial margin requirement. At the end of the day, the closing price of Jasper was $40 a share and that of Tasper was $11 a share. And your account equity position was $50 above the maintenance margin level. Assume that, if at all you get a margin call, then you need to deposit additional (margin) amount till the level of maintenance margin. What was the price of Casper per share at the end of the trading day?Problem # 4: a 10-year Treasury bond with par value of $1,000 has a 7% coupon rate and pays interest every six months. The bond is two years old and has just made its fourth payment. The current market price of the bond is $987.65. What is the annualized yield to maturity of this bond?Problem # 5: FIRE Inc?s outstanding bond has a $1,000 par value, and it matures in 10 years. It pays coupon payments semiannually, and the market selling price of it is $1,150. You are also given that the annual required rate of this bond (Yield to Maturity) is 7.50% per annum. What is the bond?s coupon interest rate?Problem # 6: You work with the Treasury department. You are asked to value a five-year zero coupon bond of face value $1,000. In the bond market, the price of a regular coupon T-bond, of five-year maturity with coupon rate of 8% and the face value of $1,000 is $1,095. You are also given the prices of different maturities zero-coupon bonds of face value $100.Zero coupon bond (maturity)PriceOne ? year$95.24Two ? year$89.85Three ? year$84.56Four - year$79.58What is the price of a five-year zero coupon bond of face value $1,000?

 

Paper#48612 | Written in 18-Jul-2015

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