A 8 Fisher Equation: i= r+ n° You have $10,000 in a bond fund with an average yield of 6%. Expected inflation over the life of your investment is 3%. What is the ex-ante real rate of return on this investment? r R C 1 D Fisher Equation: i- n² =r It л Fisher Equation: π = i-r 1 G r H 6.0% 3.0% 3.0% Aliens Bank economists have determined that the real yield on their mortgage portfolio is 2.7%. If the average interest rate on the bank's home loans is 5.4%, what can we infer about the expected rate of inflation? Fisher Equation: Fisher Equation: Fisher Equation: Fisher Equation: i=r+ n² i- n² =r i=r+nº r nº I nº r Ti-r Since 1926, US T Bond yields have averaged 5.5% and the consumer price index had a CAGR of 2.9 %. What is the long term real rate of return on T bonds? 2.7% 5.4% -2.7% r nº 2.9% 5.5% 8.4% Fisher Equation: Fisher Equation: π = i-r TL i-n²=r T Д It r

A 8 Fisher Equation: i= r+ n° You have $10,000 in a bond fund with an average yield of 6%. Expected inflation over the life of your investment is 3%. What is the ex-ante real rate of return on this investment? r R C 1 D Fisher Equation: i- n² =r It л Fisher Equation: π = i-r 1 G r H 6.0% 3.0% 3.0% Aliens Bank economists have determined that the real yield on their mortgage portfolio is 2.7%. If the average interest rate on the bank's home loans is 5.4%, what can we infer about the expected rate of inflation? Fisher Equation: Fisher Equation: Fisher Equation: Fisher Equation: i=r+ n² i- n² =r i=r+nº r nº I nº r Ti-r Since 1926, US T Bond yields have averaged 5.5% and the consumer price index had a CAGR of 2.9 %. What is the long term real rate of return on T bonds? 2.7% 5.4% -2.7% r nº 2.9% 5.5% 8.4% Fisher Equation: Fisher Equation: π = i-r TL i-n²=r T Д It r

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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13. Suppose that an FI holds two loans with the following characteristics. Annual Spread between Loan Rate and FI's Cost of Funds Loan X₁ 0.45 0.55 1 2 5.5% 3.5 Annual Fees 2.25% 1.75 Loss to Fl Expected Given Default Default Frequency 30% 20 3.5% 1.0 P12 = -0.15 Calculate the return and risk on the two-asset portfolio using Moody's Analytics Portfolio Manager.
Suppose that an FI holds two loans with the following characteristics. Annual Spread Between Loss to FI Expected Loan Rate and FI=s Annual Given Default Loan Xi Cost of Funds Fees Default Frequency 1 .6 4.5% 2.5% 30% 3% ρ12 = -.4 2 .4 3.5% 2% 20% 5% Calculate of the return and risk on the two-asset portfolio using KMV Portfolio Manager.
q5- The expected return on the market is 11% and the standard deviation of returns on the market is 4.8%. The risk-free rate of return is 5%. If you invest 75% of your funds in the market portfolio, and the balance in the risk-free asset, what is the standard deviation of the expected return from your investment? a. 3.60% b. 3.05% c. 1.20% d. 1.91%
The Treasury bill rate is 6% and the market risk premium is 7%. Which of the capital investments shown above have positive (non-zero) NPV's? Project Beta Internal Rate of Return, % P 1.00 14 Q 0.00 10 R 2.00 20 S 0.40 11 T 1.70 22
Question 1) 401K where m= | + BCE) =d (), 12.t m-1 la) Mutual fund is earning an APR of 9%. (r=.09). What monthly deposit d is needed for a balance 'of 2million dollars in 40years? Show work. b) Assume uour mutual fund is eaning an APR of 107. (r=10). What monthly deposit d is needed for a balance of 2million dollars in 4Ouears? C) Assume your mutual fund is earning an APR of 11% (F=.l1). What monthly deposit is needed for a balance of 2million dollars in 40uears?
Based on Table 3, what is the liquidity risk premium? Table 3 Investment 1 2 3 4 5 O 1.25% O 1.50% O 0.25% O 1.12% Maturity 2 2 7 8 8 Liquidity High Low Low High Low Default Risk Low Low Low Low High Interest Rate 1.00% 1.25% 2.25% 2.93% 4.43%
D6) Finance What is the OAS on the MBS with the following characteristics: 1. Coupon rate: 9.5% 2. Current market price: 97.75 3. Forward rate at T=0, 1.95%, Forward rates at T=1 +/- 75bps from T=0 rate, Forward rates at T=2 6%, 4%, and 4% from top to bottom of the forward rate tree Submit your response in X.XXX% out to 3 decimals.
Suppose the term structure of risk-free interest rates is as shown below: 5 yr 7 yr 10 yr 20 yr Term 1 yr 2 yr 3 yr 2.42 2.77 3.31 3.75 4.15 4.93 1.98 Rate (EAR %) What is the present value of an investment that pays $103 at the end of each of years 1, 2, and 3? If you wanted to value this investment correctly using the annuity formula, what discount rate should you use? What is the present value of an investment that pays $103 at the end of each of years 1, 2, and 3? The present value of the investment is $294.08. (Round to the nearest cent.) If you wanted to value this investment correctly using the annuity formula, what discount rate should you use? The discount rate you should use if you want to use the annuity formula is 2.94%. (Round to two decimal places.)
Suppose you have the following investments: Security Amount Invested Expected Return Beta A $2,000 5% .80 B $4,000 10% .95 C $6,000 15% 1.10 D $8,000 18% 1.40 What is the expected return on this portfolio?
Suppose you have the following investments: Security Amount Invested Expected Return Beta A $2,000 5% .80 B $4,000 10% .95 C $6,000 15% 1.10 D $8,000 18% 1.40 What is the beta of the portfolio? Select one: a. 1.16 b. 0.59 c. 1.34 d. 1.20
2. You expect your mutual fund portfolio to yield and 8% return and anticipate inflation to be 2%. Calculate the inflation adjusted return for your portfolio. (1+Return) Inflation-Adjusted Return 1 (1+Inflation Rate) Inflation Adjusted Return
You have £500 to invest in 5 assets whose returns are independent and normally distributed, respectively, as N(1.03,0.05), N(1.04,0.08), N (1.01, 0.01), N (1.09, 0.13) and N (1.06, 0.065), where the first value is mean and second is std. dev. At least 20% of your portfolio should be invested in the first asset, no more than 75% can be made up of second, third and fifth assets combined, and investment in the fourth asset cannot be any bigger than the first asset. Short-selling is not allowed. Consider the tradeoff model with & = 0.2.

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