1.3.4 Suppose that your client decides to invest in your portlollo a proportion y of the total investment budget so that the overall portiflio will have an expected rale of retum of 161. Calculate and interpiet the proportion y bo four decimal places. 1.3.6 Your elients degree of risk aversion is A=1.6. Work to four decinal places (a) What is the proportion y of the total imvestment ahould be invested in your fundi (2) (b) What is the expected value and standard deviation of the rale of return on your clients optimised portfollo? Work with FOUR decimal places and final antwers should be in percentage forinat to TWO decimal places. QUESTION 2 As a pension fund manager, you are considering two riaky stock funds, namely stock fund Mickey and stock fund Donald as well Trbill money market fund that ylelds a rate of 7.5%. The probability diatribution of the fisky funds is provided in the table below. Use this informaton to answer the questions that follow. Work with four decimal places in all your workings. The correlation between the fund returns is 15%. 21 Calculate the covariance between the two tisky funds. 2.2 Calculate the investment proporbons in the optimal risky portiolio P and the expecled retum and standard deviation of the optimat risky portifolio. 23. Calculate the siope of the CAL suppotted ty T.bills and portfolio P. 2.4. How much will an investor with A=8 invest in funds M and D and in Ttill? QUESTION 3 3.1 Investors expect the market rale of return in the coming year to be BW. The Tbil rate is 5.55. The systematicrisk of the shares of Lucky Lucy Eld is 1.25. The market value of the outstanding equity is Rtoo milison. Work with four decimal places and round finat answers to two decimal places. 3.1.1 Calculate the expected rafe of teturn on the shares. 3.12. If the market return in the coming year actualy tums out to be 9.5% and not 8%. determine the revised forecasled rate of relum on the shares (3) (3) 2 3.1.3 Explain the sensitivity of the expected rate of return on the shares. (5) 32. Your friend made the following comment: "All securities are fairfy priced; therefore, all securities must offer the same expected return. Do you agree with this comment? Motivate your response. 3.3 In a recent contested lawsult, A.Store sued B.Store for patent infringement. The final decision regarding the lawsuit is due today. The rate of return on A.Store was 4.80% While the rate of return on B.Store was 3.10%. The market today responded to very encouraging news about the unemployment rate and return on the market is 3.55%. The historical relationship between return on these stocks and the market porffolio has been estimated from index model regression as: AvstoreB-store=0.64%+1.15m=0.18%+0.95rm 3.3.1 Indicate whether the companies over- or underperformed. Motivate your choice clearly. 3.3.2 Based on this information, Which company won the lawsuit? Provide the relevant calculations to support your answer. 3.4 Calculate the 5-day moving average of the share price of Aspen Pharmacare Holdings using the closing price for the latest 5 -day period. 3.6 Assume Baa-rated bonds currently yield 6.25% while Aa-rated bonds yield 5.5%. Due to a decrease in the expected inflation rate, the yields on bonds decrease by 0.75%. 3.5.1 What would happen to the confidence index? 3.5.2 Would this be interpreted bullish of bearish by a technical analyst? Motive your answer. 3.6 On 17 September 2022, there were 1118 stocks that advanced on the NYSE, 2228 that declined and 161 that remained unchanged. The volume in advancing issues was 1302.590455, the volume in declining issues was 2728809609 and a total of 61231532 remained unchanged. Considering the information given, would you tegard the market to be bullish or bearish? 3.6.1 Calculate and interpret the breadth of the market. 3.6.2 Calculate and interpret the trin ratio to support yout answer. QUESTION 4 4.1 You purchased an annual interest coupon bond one year ago that now has 9 years remaining unts maturity. The coupon rate of interest was 11% paid quartetly and par value was R1000. At the time you purchased the bond, the yield to maturity was 8%. 4.1.1 Calculate the price you paid for this bond one year ago. 4.1.2 Would this be a par. premium or discount bond? Motivate your answer by providing two reasons. (3) 4.2 Furniture for Africa issued 5-year bonds selling for R950 and have an 8\% coupon rate paid annually. 4.2.1 Calculate the yield to maturity for one Furniture for Africa bond. 4.22 Calculate the realised compound yield for an investor with a 3-year holding period and a reimvestment rate of 6.5% over the period. At the end of the 3 years, the 8% coupon bonds with 2 -years remaining will sell to yield 7.5%. (B) 4.3 The yield to maturity (YTM) on 1-year zero-coupon bonds is currently 5.5%, while the YTM on 2 -year zetos is 6.5%. The Treasury plans to issue a 2 -year maturity coupon bond, paying coupons annually with a coupon rate of 7.50%. The face value of the bond is R1000. The liquidity premium is 1%. 4.3.1 Calculate the price for a 2 year maturity coupon bond. 4.3.2 Calculale the yield to maturity on the 2-year maturity coupon bond. 4 4.3.3 Calcilate the forward rate for year 2. 4.3.4. What is the market expectation of the price that the bond will sell for next year if you believe that the expectations theory of the yield curve is correct? 4.3.6. What is the market expectation of the price that the bond will sell for next year if you believe that the liquidity preference theory is coerect? (4) 4.4 A 1-year 8.5% coupon bond is currently seling 89.5 of par. Calculate the holding period retum on this bond. 4.5 Suppose that all investors expect that interest rates for the 4 years will be as follows: Calculate the price of a 2-year zero-coupon bond with al par value of R1 000 . 4.6. Use the following convertible bond information and then answer the questions that follow. 4.6.1 Calculate the conversion value. 4.6.2 Calculate the conversion premium. (2) 4.7 A 30 -year maturity bond with a coupon of 8.5% paid annually is currently selling at a yield of maturity of 8.5%. Assume the modified duration is 10.62 years and the convexity is 210.30. Use the durabion-with convexity rule to calculate, and interpret, the change in the price of the bond if the yield is expected to increase from 8.6% to 9%. 4.8 A 20-year 12% bond paying annual coupons, currently selis at a yield to maturity of 10\%. The par value is R1 000. A portfolio manager with a 2 -year horizon needs to forecast the total return on the bond over the coming 2 years. In 2 years, the bond wil have an 18 -year maturity and it is forecasted to sell at yields to maturity of 8.5% while coupon payments can be reinvested in short-term securities over the coming 2 years at a rate of 7.5%. Perform a horizon analysis to calculate the 2 -yeat return on the bond. 1.3.4 Suppose that your client decides to invest in your portlollo a proportion y of the total investment budget so that the overall portiflio will have an expected rale of retum of 161. Calculate and interpiet the proportion y bo four decimal places. 1.3.6 Your elients degree of risk aversion is A=1.6. Work to four decinal places (a) What is the proportion y of the total imvestment ahould be invested in your fundi (2) (b) What is the expected value and standard deviation of the rale of return on your clients optimised portfollo? Work with FOUR decimal places and final antwers should be in percentage forinat to TWO decimal places. QUESTION 2 As a pension fund manager, you are considering two riaky stock funds, namely stock fund Mickey and stock fund Donald as well Trbill money market fund that ylelds a rate of 7.5%. The probability diatribution of the fisky funds is provided in the table below. Use this informaton to answer the questions that follow. Work with four decimal places in all your workings. The correlation between the fund returns is 15%. 21 Calculate the covariance between the two tisky funds. 2.2 Calculate the investment proporbons in the optimal risky portiolio P and the expecled retum and standard deviation of the optimat risky portifolio. 23. Calculate the siope of the CAL suppotted ty T.bills and portfolio P. 2.4. How much will an investor with A=8 invest in funds M and D and in Ttill? QUESTION 3 3.1 Investors expect the market rale of return in the coming year to be BW. The Tbil rate is 5.55. The systematicrisk of the shares of Lucky Lucy Eld is 1.25. The market value of the outstanding equity is Rtoo milison. Work with four decimal places and round finat answers to two decimal places. 3.1.1 Calculate the expected rafe of teturn on the shares. 3.12. If the market return in the coming year actualy tums out to be 9.5% and not 8%. determine the revised forecasled rate of relum on the shares (3) (3) 2 3.1.3 Explain the sensitivity of the expected rate of return on the shares. (5) 32. Your friend made the following comment: "All securities are fairfy priced; therefore, all securities must offer the same expected return. Do you agree with this comment? Motivate your response. 3.3 In a recent contested lawsult, A.Store sued B.Store for patent infringement. The final decision regarding the lawsuit is due today. The rate of return on A.Store was 4.80% While the rate of return on B.Store was 3.10%. The market today responded to very encouraging news about the unemployment rate and return on the market is 3.55%. The historical relationship between return on these stocks and the market porffolio has been estimated from index model regression as: AvstoreB-store=0.64%+1.15m=0.18%+0.95rm 3.3.1 Indicate whether the companies over- or underperformed. Motivate your choice clearly. 3.3.2 Based on this information, Which company won the lawsuit? Provide the relevant calculations to support your answer. 3.4 Calculate the 5-day moving average of the share price of Aspen Pharmacare Holdings using the closing price for the latest 5 -day period. 3.6 Assume Baa-rated bonds currently yield 6.25% while Aa-rated bonds yield 5.5%. Due to a decrease in the expected inflation rate, the yields on bonds decrease by 0.75%. 3.5.1 What would happen to the confidence index? 3.5.2 Would this be interpreted bullish of bearish by a technical analyst? Motive your answer. 3.6 On 17 September 2022, there were 1118 stocks that advanced on the NYSE, 2228 that declined and 161 that remained unchanged. The volume in advancing issues was 1302.590455, the volume in declining issues was 2728809609 and a total of 61231532 remained unchanged. Considering the information given, would you tegard the market to be bullish or bearish? 3.6.1 Calculate and interpret the breadth of the market. 3.6.2 Calculate and interpret the trin ratio to support yout answer. QUESTION 4 4.1 You purchased an annual interest coupon bond one year ago that now has 9 years remaining unts maturity. The coupon rate of interest was 11% paid quartetly and par value was R1000. At the time you purchased the bond, the yield to maturity was 8%. 4.1.1 Calculate the price you paid for this bond one year ago. 4.1.2 Would this be a par. premium or discount bond? Motivate your answer by providing two reasons. (3) 4.2 Furniture for Africa issued 5-year bonds selling for R950 and have an 8\% coupon rate paid annually. 4.2.1 Calculate the yield to maturity for one Furniture for Africa bond. 4.22 Calculate the realised compound yield for an investor with a 3-year holding period and a reimvestment rate of 6.5% over the period. At the end of the 3 years, the 8% coupon bonds with 2 -years remaining will sell to yield 7.5%. (B) 4.3 The yield to maturity (YTM) on 1-year zero-coupon bonds is currently 5.5%, while the YTM on 2 -year zetos is 6.5%. The Treasury plans to issue a 2 -year maturity coupon bond, paying coupons annually with a coupon rate of 7.50%. The face value of the bond is R1000. The liquidity premium is 1%. 4.3.1 Calculate the price for a 2 year maturity coupon bond. 4.3.2 Calculale the yield to maturity on the 2-year maturity coupon bond. 4 4.3.3 Calcilate the forward rate for year 2. 4.3.4. What is the market expectation of the price that the bond will sell for next year if you believe that the expectations theory of the yield curve is correct? 4.3.6. What is the market expectation of the price that the bond will sell for next year if you believe that the liquidity preference theory is coerect? (4) 4.4 A 1-year 8.5% coupon bond is currently seling 89.5 of par. Calculate the holding period retum on this bond. 4.5 Suppose that all investors expect that interest rates for the 4 years will be as follows: Calculate the price of a 2-year zero-coupon bond with al par value of R1 000 . 4.6. Use the following convertible bond information and then answer the questions that follow. 4.6.1 Calculate the conversion value. 4.6.2 Calculate the conversion premium. (2) 4.7 A 30 -year maturity bond with a coupon of 8.5% paid annually is currently selling at a yield of maturity of 8.5%. Assume the modified duration is 10.62 years and the convexity is 210.30. Use the durabion-with convexity rule to calculate, and interpret, the change in the price of the bond if the yield is expected to increase from 8.6% to 9%. 4.8 A 20-year 12% bond paying annual coupons, currently selis at a yield to maturity of 10\%. The par value is R1 000. A portfolio manager with a 2 -year horizon needs to forecast the total return on the bond over the coming 2 years. In 2 years, the bond wil have an 18 -year maturity and it is forecasted to sell at yields to maturity of 8.5% while coupon payments can be reinvested in short-term securities over the coming 2 years at a rate of 7.5%. Perform a horizon analysis to calculate the 2 -yeat return on the bond