You are working in a research team in a bank. You need to write a research...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You are working in a research team in a bank. You need to write a research report in a group on the sensitivity of the stock return of a bank to the change in the long-term interest rate using the Stone (1974) two-index model. The following model can be used to estimate the empirical duration (that is, the sensitivity of the stock return of the institution to the change in the long-term interest rate): ri,t = a0 + alrm,t + diAlt + εi,t (1) Where ri,t is stock return on the ith bank; rm,t is return on the S&P/ASX All ordinaries Index; AI represents change in 10-year Commonwealth government securities yield; and ɛi,t is the random error term at day t. Data sources: Daily closing stock prices for the chosen financial institution, the All Ordinaries index and the yield on 10-year Commonwealth government securities are obtained from Thomson Reuters Eikon. Estimation period: Jan 3, 2000-Jul 25, 2022 Required: Write a research report based on the empirical duration model as given in Equation 1 with the following parts: (a) Introduction (Hints: you should discuss why financial institutions are sensitive to the change in interest rates and highlight the empirical literature on this topic) (b) Methodology (Hints: you should discuss the model, sources of data etc.) (c) Findings (Hints: you should discuss the results from the model) (d) Conclusion (Hints: you should discuss the implications) Bank - National Australia Bank (NAB) You are working in a research team in a bank. You need to write a research report in a group on the sensitivity of the stock return of a bank to the change in the long-term interest rate using the Stone (1974) two-index model. The following model can be used to estimate the empirical duration (that is, the sensitivity of the stock return of the institution to the change in the long-term interest rate): ri,t = a0 + alrm,t + diAlt + εi,t (1) Where ri,t is stock return on the ith bank; rm,t is return on the S&P/ASX All ordinaries Index; AI represents change in 10-year Commonwealth government securities yield; and ɛi,t is the random error term at day t. Data sources: Daily closing stock prices for the chosen financial institution, the All Ordinaries index and the yield on 10-year Commonwealth government securities are obtained from Thomson Reuters Eikon. Estimation period: Jan 3, 2000-Jul 25, 2022 Required: Write a research report based on the empirical duration model as given in Equation 1 with the following parts: (a) Introduction (Hints: you should discuss why financial institutions are sensitive to the change in interest rates and highlight the empirical literature on this topic) (b) Methodology (Hints: you should discuss the model, sources of data etc.) (c) Findings (Hints: you should discuss the results from the model) (d) Conclusion (Hints: you should discuss the implications) Bank - National Australia Bank (NAB)
Expert Answer:
Answer rating: 100% (QA)
A Introduction The purpose of this report is to investigate the sensitivity of stock return of Natio... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
A number of different models can be used to estimate return. Derive the circumstances under which the use of the zero-beta model might lead to the market being considered inefficient when the...
-
Two geological field teams are working in a remote area. A global positioning system (GPS) tracker at their base camp shows the location of the first team as 38 km away, 19 north of west, and the...
-
You are working in a mid-sized non-profit urban hospital as the supervisor responsible for a unit. You have supervised this unit for four years. For the first time the hospitals chief financial...
-
You plan to "go green" and install solar panels on your home in 36 months. The solar company has a payment plan whereby you will pay for the panels in 120 monthly payments (installments) starting in...
-
Cobalt Industries had sales of 150,000 units at a price of $10 per unit. It faced fixed operating costs of $250,000 and variable operating costs of $5 per unit. The company is subject to a tax rate...
-
Contrast the rational and non-rational models of managers as decision makers.
-
Solve various time value of money scenarios (Learning Objectives 3, 4) 1. Curt just hit the jackpot in Las Vegas and won \(\$ 50,000\) ! If he invests it now at a \(10 \%\) interest rate, how much...
-
Statement of Budgetary Resources. The trial balance of the Federal Science Administration, as of August 31, 2011, follows: Required Prepare a statement of budgetary resources for the 11 months ended...
-
In the class sessions and within the textbooks, it was explained that cost is a term which applies to the financial value of a cost object within the operation of the healthcare services...
-
A beam ABCD with a vertical arm CE is supported as a simple beam at A and D (see figure). A cable passes over a small pulley that is attached to the arm at E. One end of the cable is attached to the...
-
Blue Company paid $ 8 7 0 on account to a creditor. The transaction was erroneously recorded as a debit to Cash of $ 7 8 0 and a credit to Accounts Receivable, $ 7 8 0 . The correcting entry is ?
-
The Outback Spectacular show has a shop that sells cowboy style jackets. It has spent $33,000 to purchase 3,000 jackets. Due to changing fashions, they have not been able to sell the jackets at the...
-
K is a small organisation which makes plastic toys. The company was very recently formed by Mr V . Mr V is a skilled entrepreneur with many years of experience in the industry. The toy industry is...
-
Strike Company incurs about $430,000 in manufacturing overhead costs each month. The company works about 100,000 direct labor hours (DLH) per month, so the average overhead per DLH is $4.30. The...
-
ErenCo is an up-and-coming stone quarry company. A recent report, reflecting the general sentiment of all market participants, projected the following prices and probabilities for ErenCo stock on...
-
In the following linear equation, find the value of y when x = -2. Provide your answer below: y = y=2x+11
-
rendan deposits 150000 into a fund In 2 years 5 months and 24 days the balance in Brendan s account is 174965 17 What rate j4 was rendan earning on his money if the exact method was in effect
-
On October 31 Juanita Ortega, owner of Outback Guide Service, received a bank statement dated October 30. Juanita found the following: 1. The checkbook has a balance of $2,551.34. 2. The bank...
-
Explain the use of a prospectus developed before an IPO. Why does a firm do a road show before its IPO? What factors influence the offer price of stock at the time of the IPO?
-
Assume the following conditions. The last time the FOMC met, it decided to raise interest rates. At that time economic growth was very strong, and inflation was relatively high. Since the last...
-
Suppose the net income generated by a bank is equal to 1.5 percent of assets. Based on past experience, would the bank experience a loss or a gain? Explain.
-
Since most not-for-profit firms have a myriad of different products or services, a new project's contribution to the riskiness of the overall firm's portfolio of projects, or its corporate risk, is...
-
No. The asymmetric information theory refers to a preferred "pecking order" of financing by corporate managers, with new common stock being the least preferred because of the negative signals that...
-
Match the terms on the left with the definitions on the right: 1. Accounting 2. Profitability 3. Liquidity 4. Financing activities 5. Investing activities 6. Operating activities 7. Financial...
Study smarter with the SolutionInn App