Question
a.Investor holds $100,000 in stock. He borrows $40,000 for 1 year at a rate of 9.00% with the principal due at maturity. If stock returns
a.Investor holds $100,000 in stock. He borrows $40,000 for 1 year at a rate of 9.00% with the principal due at maturity. If stock returns 26.00% during the one-year life of the loan, what is the investor's return on equity in her overall portfolio rounded to the nearest basis point (0.01%)?
b.Suppose the price of a 2-year Zero is $812.00. Rounded to the nearest basis point, what is the annualized 2-year spot rate (semi-annually compounded)?
c.Suppose you buy a 15-year Zero coupon and sell it one year later. If the bond yields 18.01% initially and 19.77% at the end of your one-year holding period, what is your return? Use semi-annual compounding and round to the nearest 0.01%
d.Consider a 25-year142.50% coupon Treasury bond. If its yield to maturity (YTM) is 9.00%, what is the price of the bond?
e.Suppose the 14-year spot rate (ra) is 5.0% and the 17-year spot rate (ro) is 3.0%. Which rate is closest to the forward rate that begins in 18 years and lasts for 12 years (f.)?
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