Q1(a)
| REZJ | RAV | RITRK | RCRDA | RMKT | |
| σ2 | |||||
| σ | |||||
| β | |||||
| α | |||||
| ERB | |||||
| η2 |
| Formula used | |
|
|
|
| β |
|
| α |
|
| ERB |
|
| η2 |
|
Q1(b) (i)
| Correlation Coefficients | |||||
| REZJ | RAV | RITRK | RCRDA | RMKT | |
| REZJ | |||||
| RAV | – | ||||
| RITRK | – | – | |||
| RCRDA | – | – | – | ||
| RMKT | – | – | – | – | |
(ii)
| Share to be used is
Reason:
|
Q1(c)
| dy | g | Ret.
ratio |
ROE | No Growth Price
(NGP) |
DDM
Price |
PVGO
(Market) |
PVGO (DDM) |
|
| ITRK | ||||||||
| EZJ | ||||||||
| AV | ||||||||
| CRODA |
| Formula | |
|
dy
|
|
| g |
|
| Ret. Ratio |
|
| ROE |
|
| NGP |
|
| DDM Price |
|
| PVGO (Market) |
|
| PVGO (DDM) |
|
| No growth price (NGP) is higher than the DDM Price in the cases of
Reason:
|
Q1(d) Elton and Gruber Procedure
| Share Number | SHARE | β | η2 | ERB (%) | Cj | |
| 1 | ||||||
| 2 | ||||||
| 3 | ||||||
| 4 |
| Share Number | Name | Unadjusted weight | Adjusted weight |
| 1 | |||
| 2 | |||
| 3 | |||
| 4 |
Q1(e) Treynor-Black Procedure
Active Portfolio
| Share Number | Name | α | β | Unadjusted weight | Adjusted weight | |
| 1 | ||||||
| 2 | ||||||
| 3 | ||||||
| 4 |
- Insert zeros weights where share not included.
| Name | Unadjusted weight | Adjusted weight | |
| α of active portfolio | |||
| β of active portfolio | |||
| of active portfolio |
Treynor-Black Portfolio
| Name | Unadjusted weight | Adjusted weight |
| Active Portfolio | ||
| Market Portfolio | n/a |
| Comment on the adjusted weights of TB portfolio |
Q1 (f)
Table of Index Values
| Date | PWAI | VWAI | EWGRI | EWARI |
| 1-Jan-2010 | 100 | 100 | 100 | 100 |
| 4-Jan-2011 | ||||
| 2-Jan-2012 | ||||
| 1-Jan-2013 | ||||
| 1-Jan-2014 |
Q2 a).
| (i) | Download Date:
Price : |
|
| (ii) | Latest Coupon Date (2015):
Value of Coupon: |
|
| (iii) | Dirty Price
On download day = |
Working |
| (iv) | Current yield , rc
= |
Working: |
| (v) | Price on 2015 coupon date = | |
| (vi) | Equation for yield to maturity on last coupon date:
|
|
| (vii) | Yield to maturity, rm = | |
| (viii) | Table from excel of duration calculation | |
| (ix) | Duration = | |
Q2b
| (i) | What is a ‘Convertible Bond’?
|
| (ii) | What is a ‘Mandatory Convertible’ Bond? |
| (iii) | What does ‘physically settled’ mean? |
| (iv) | What does the Conversion Price represent? |
| (v) | the arithmetic average of the daily volume-weighted average prices = |
| Working: | |
| (vi) | Initial Conversion Price = |
| (vii) | options considered to be OTC because |
| (viii) | What does cash-settled (options contracts) mean? |
| (ix) | Vodafone’s hedge against |
| (x) | How does buying the calls provide a hedge? |
| (xi) | How does selling the Puts provide a hedge? |
| (xii) | Speculators:
positions: |
| (xiii) | options that should be used are |
| (xiv) | Bond price per £100 nominal is |
| (xv) | What is the coupon stream of the 18 month bond? |
| (xvi) | The yield to maturity of the 3 yr 2% bond =
Reasoning: |
| (xvii) | Why are the bonds to be accounted for as equity and not debt? |
Q3(a)
| Why are Futures are marked to market? |
Q3(b)
| Exchange for ST3 Trading?
Marking to market carried out by: |
Q3c) Insert Table showing marking to market
Q3 (d)
| Why did trader B have a lower initial margin? |
Q3 (e)
| In what way is marking to market a risk in futures trading? |
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