The following return series comes from Global Financial Data. US T-bills CPI Year Large Stocks LT Gov Bonds (Rf asset) (inflation) 2017 21.83% 6.24% 0.80% 2.07% 2018 -5.28% -1.25% 1.81% 2.10% 2019 25.45% 3.35% 2.15% 1.10% 2020 18.16% 10.25% 4.50% 1.88% 2021 28.70% -1.54% 0.40% 7.00% 2022 -19.78% -8.55% 2.20% 6.50% Calculate the average real risk premium earned on large-company stocks using the approximate Fisher equation. (Enter percentages as decimals and round to 4

The following return series comes from Global Financial Data. US T-bills CPI Year Large Stocks LT Gov Bonds (Rf asset) (inflation) 2017 21.83% 6.24% 0.80% 2.07% 2018 -5.28% -1.25% 1.81% 2.10% 2019 25.45% 3.35% 2.15% 1.10% 2020 18.16% 10.25% 4.50% 1.88% 2021 28.70% -1.54% 0.40% 7.00% 2022 -19.78% -8.55% 2.20% 6.50% Calculate the average real risk premium earned on large-company stocks using the approximate Fisher equation. (Enter percentages as decimals and round to 4

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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Question 1 The following are annual rates of return for T-bills in Ghana and Share on the Ghana Stock exchange Year T-bill Shares on Ghana Stock Exchange 2016 0.063 0.150 2017 0.081 0.043 2018 0.076 0.374 2019 0.090 0.192 2020 0.085 0.106 a. Compute the arithmetic mean rate of return and standard deviation of rates of return for the two series. b. Discuss these two alternative investments in terms of their arithmetic average rates of return, their absolute risk, and their relative risk. Compute the geometric mean rate of return for each of these investments. Compare the arithmetic mean return and geometric mean return for each investment and discuss the difference between mean returns as related to the standard deviation of each series.
Consider the following information for a period of years: Arithmetic Mean Long-term government bonds 7.0 % Long-term corporate bonds 7.1 Inflation 4.0 What is the real return on long-term government bonds? ____%
Consider the following money market information being quoted: Which of the following statements is true? Particulars GBP Interest Rate THB Interest Rate Spot Rate 1-year Expected Spot Rate Bid Rate 6.100% 10.550% THB5.6601/GBP THB5.9037/GBP C. Ask Rate 6.125% 10.625% THB5.6622/GBP THB5.9961/GBP a. There is an arbitrage which can only be made by initially borrowing GBP and then investing in THB. b. More than one of the options in this question are correct. The THB is selling at a premium to the GBP in the future. O d. There is an arbitrage which can only be made by initially borrowing THB and then investing in GBP.
Annual and Average Returns for Stocks, Bonds, and T-Bills, 1950 to 2019 Long-Term Treasury Bonds 6.6% 0.0 1.6 5.7 13.5 9.5 8.0 9.4 1950 to 2019 Average 1950 to 1959 Average 1960 to 1969 Average Average Average Average 1970 to 1979 1980 to 1989 1990 to 1999 2000 to 2009 2010 2011 Annual Return 2012 Annual Return 2013 Annual Return 2014 Annual Return 2015 Annual Return 2016 Annual Return 2017 Annual Return 2018 Annual Return 2019 Annual Return 2010 to 2019 Average 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average Average Annual Return Standard deviation Portfolio Return % % % % % % % % % % % Stocks 12.7% % 20.9 8.7 7.5 18.2 19.0 0.9 15.1 2.1 16.0 32.4 13.7 1.4 12.0 21.8 -4.4 31.5 14.2 29.9 3.6 -12.7 25.1 -1.2 You have a portfolio with an asset allocation of 50 percent stocks, 36 percent long-term Treasury bonds, and 14 percent T-bills. Use these weights and the returns given in the above table to compute the return of the portfolio in the year 2010 and each year since. Then…
B/S Leverage: LEVERAGE 2020 2019 2017 Debt/Total Capital 150.2% 2018 Debt/EBITDA 2.02x 6.3x 2.9x 89.0% 1.82x 8.4x 3.1x 41.9% 0.76x 44.7x 3.8x Times Interest Earned Fixed Charge Coverage 251.4% 3.75x 3x 1.9x a. Based on the leverage ratios above, describe what is happening to leverage at Gracenat Company AND provide two different and separate reasons why this might have happened. b. Based on these leverage ratios, what do you believe the outlook is for this company in two years (2022)? Please answer both the questions
B/S Leverage: LEVERAGE 2020 2019 2017 Debt/Total Capital 150.2% 2018 Debt/EBITDA 2.02x 6.3x 2.9x 89.0% 1.82x 8.4x 3.1x 41.9% 0.76x 44.7x 3.8x Times Interest Earned Fixed Charge Coverage 251.4% 3.75x 3x 1.9x a. Based on the leverage ratios above, describe what is happening to leverage at Gracenat Company AND provide two different and separate reasons why this might have happened. b. Based on these leverage ratios, what do you believe the outlook is for this company in two years (2022)?
Consider the following information for a period of years: Long-term government bonds Long-term corporate bonds Inflation Arithmetic Mean 7.8% a. Long-term government bonds b. Long-term corporate bonds 7.9 3.5 a. What is the real return on long-term government bonds? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the real return on long-term corporate bonds? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. 4.25% %
What equation was used to get the Aftertax Cost of Debt? Debt Face Value 1000 Bond Price 1271.59 Coupon Payment 75 Maturity 50 Yield to Maturity 11.64% Aftertax Cost of Debt 9.31%
Assume that yields on U.S. Treasury securities were as follows:Term Rate6 months 4.69%1 year 5.492 years 5.663 years 5.714 years 5.895 years 6.0510 years 6.1220 years 6.6430 years 6.76 a. Plot a yield curve based on these data.b. What type of yield curve is shown?c. What information does this graph tell you?d. Based on this yield curve, if you needed to borrow money for longer than 1 year,would it make sense for you to borrow short term and renew the loan or borrow longterm? Explain.
A credit analyst is evaluating the solvency of Alcatel-Lucent (Euronext Paris: ALU) asof the beginning of 2010. Th e following data are gathered from the company’s 2009annual report (in € millions):2009 2008Total equity 4,309 5,224Accrued pension 5,043 4,807Long-term debt 4,179 3,998Other long term liabilities* 1,267 1,595Current liabilities* 9,050 11,687Total equity + Liabilities (equals Total assets) 23,848 27,311*For purposes of this example, assume that these items are non-interest bearing, and that longterm debt equals total debt. In practice, an analyst could refer to Alcatel’s footnotes to confi rmdetails, rather than making an assumption.1 . A . Calculate the company’s fi nancial leverage ratio for 2009.B . Interpret the fi nancial leverage ratio calculated in Part A.2 . A . What are the company’s debt-to-assets, debt-to-capital, and debt-to-equity ratiosfor the two years?B . Is there any discernable trend over the two years?
The Analysis and Valuation of Bonds, Investment Analysis and Portfolio Management1. The following table shows spot rates on US Treasury securities as of January 1, 2019:Term to Maturity CalculatedSpot Rates1 Year 3.50%2 Years 4.50%3 Years 5.00%4 Years 5.50%5 Years 6.00%10 Years 6.60%Based on the data on the tablea) Calculate the one-year implied forward rate, four years from now.b) Calculate the 2-year implied forward rate, two years from now.
ssume these were the inflation rates and U.S. stock market and Treasury bill returns between 1929 and 1933: Year Inflation(%) Stock Market Return(%) T-Bill Return(%) 1929 0.5 –13.2 6.1 1930 –5.5 –30.7 2.9 1931 –9.3 –47.6 1.5 1932 –13.2 –8.2 0.8 1933 0.9 64.2 0.6 What was the average risk premium?

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