We know the following two premiums: E(™) — E(˜Â) = 0.4 and E(râ) –— Tƒ = 0.1. (a) Calculate A. (b) If security B has B = 1 and E(TB) - rf = 0.5. What is aB?
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- IT IS NOT DELTA Option _______ is a percentage change in the value of the option per 1% change in the value of the underlying security. b. Rho c. Elasticity d. ThetaConsider two securities, A and B, whose standard deviations of returns and betas are given below: Security A Security B Standard deviation 15% 25% Beta 1.30 0.75 Which security will have the higher risk premium? Security A or B?A forward contract has an underlying asset which, in Cox-RossRubenstein notation, has S=22,u=1.2 and d=0.9. This forward contract matures in one time step and the return over this time step is R=1.02. Assuming the forward price is calculated rationally, what is the value of the forward at node (1,1)? (Give your answer as a positive number.)
- If the risk premium to beta ratio of GOOG is 2 while the ratio of APPL is 3, what will happen?Given the utility function U = E(r) Ac€?o 0.5AA?A?2 and the fact that T-bill offer a risk-free rate of 4%, what is the minimum value for the risk-aversion coefficient A where an investor prefers the T-bills to an investment returning 10% with a standard deviation of 18%? (Hint: T-bills are risk-free)Calculate a security’s default risk premium where the equilibrium rate of return is 8 percent, the inflation risk premium is 1.25 percent, the real risk-free rate is 3.5 percent, the liquidity risk premium is 0.35 percent, and the maturity risk premium is 0.95 percent and there are no special covenants.
- Given a real rate of interest of 2%, an expected inflation premium of 3%, and risk premiums for investments A and B of 4% and 6%, respectively, find the following. The risk-free rate of return, rfI just want to make sure that I'm correct, the answers I selected are in bold. If it doesn't show: 1. D (the risk-free rate plus a risk premium) 2. B (conversion) 3. C (par value) 4. B ($655.00) - For question 4, the table is attached. 1) Nominal rate of interest is equal to ________. A) the real rate plus an inflationary expectation B) the real rate plus a risk premium C) the risk-free rate plus an inflationary expectation D) the risk-free rate plus a risk premium 2) The ________ feature allows bondholders to change each bond into stated number of shares of stock. A) call B) conversion C) put D) swap 3) A $1,000, 8% bond sells for 980. $1,000 is called the ________. A) current value B) market value C) par value D) auction value Assume the below information to answer the following question(s). 4) Based on the table above, assume this bond's face value is $1,000. What is the bond's current market price? A) $65.00 B) $655.00 C) $650.00 D) $6,550.00a. Compute the expected rate of return on investment i given the following information: the market risk premium is 5%; Rf = 6%; βi = 1.2. b. Compute E(RM).
- Compute the expected rate of return on investment i given the followinginformation: Rf = 8%; E(RM) = 14%; βi = 1.0.b. Recalculate the required rate of return assuming βi is 1.8.25. a. Compute the expected rate of return on investment i given the followinginformation: the market risk premium is 5%; Rf = 6%; βi = 1.2.b. Compute E(RM)Question 1. Suppose t ≤ T1 ≤ T2 ≤ T3, where t is the current time, and ∆ > 0. Recall that Z(T1, T2) is the price at time T1 of a ZCB with maturity T2 and F(T1, T2, T3) is the forward price at time T1 for a forward contract with maturity T2 on a ZCB with maturity T3. a) For each of the pairs of A and B in the table, choose the most appropriate relationship out of ≥, ≤, = , ?, where ? means the relationship is indeterminate. Give brief reasoning. A ≥, ≤, = , ? B (i) Z(t, T1) 1 (ii) Z(T1, T1) 1 (iii) Z(t, T2) Z(t, T3) (iv) Z(T1, T2) Z(T1, T3) (v) Z(T1, T3) Z(T2, T3) (vi) Z(T1, T1 + ∆) Z(T2, T2 + ∆) (vii) F(t, T1, T2) F(t, T1, T3) (viii) F(t, T1, T3) F(t, T2, T3) (ix) limT→∞ Z(t, T) 0 Hint: Remember that at current time t, F(t, ·, ·) is known but Z(T, ·) is a random variable. b) What can you say about interest rates between T1 and T2 if i) Z(t, T1) = Z(t, T2)? ii) Z(t, T1) > 0 and Z(t, T2) = 0?Explain why y0u disagree 0r agree with the f0ll0wing statements. The answer sh0uld n0t be m0re than 3 sentences Treasury b0nds are riskier than c0rp0rate b0nds. All 0ther things held c0nstant; the future value 0f an 0rdinary annuity is always having a higher future value than annuity due. All 0ther things held c0nstant, the price 0r interest rate risk 0f sh0rt-term b0nd is always l0wer than l0ng-term b0nd.