help with this economics hw due tmrw only 3 questions

Name ____________________________ First 2 letters of last name _____ Homework Assignment #3 - (85 points total) Econ 351 -Fall 2016 -PLEASE STAPLE, DUE, Wednesday, October 19, 2016 AT THE BEGINNING OF CLASS: NO LATE HWS ACCEPTED. YOU MUST USE THIS AS A TEMPLATE - THAT IS - MAKE SPACE FOR YOUR ANSWERS BY HITTING ENTER (you certainly don't need to type this assignment)- LEAVE THE QUESTIONS AS THEY ARE - AND PLEASE STAPLE! NOTEBOOK PAPER (OR ANY PAPER) STAPLED TO THE BACK IS NOT ACCEPTABLE (GETS A ZERO). ALSO, PLEASE PUT THE FIRST TWO LETTERS OF YOUR LAST NAME IN THE TOP RIGHT HAND CORNER OF THIS PAGE SO THAT WE CAN ALPHABETIZE THESE EASILY. THANKS IN ADVANCE! 1) (30 points) The two graphics (below) depict the 2 yr and 3 yr GS respectively. The Fed officially got off the zero bound December 16, 2015. Click Here for statement. The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective. Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. Below is a graphic of the 2 year GS Below is a graphic of the 3 year GS 1 a) (10 points) Suppose you are bullish on the 2 year GS and purchased ten 2 year GS with a face value of $1000 and a coupon payment of 3% on January 1st (point A on graphic). You close your position on February 12 (point B on graphic). Calculate your profit/ loss and rate of return. We ignore the coupon payment since we only held the GS for a short time. b) (10 points) Suppose you are bullish on the 3 year GS and purchased ten 3 year GS with a face value of $1000 and a coupon payment of 5% on January 1st (point A on graphic). You close your position on February 12 (point B on graphic). Calculate your profit/ loss and rate of return. We ignore the coupon payment since we only held the GS for a short time. c) (10 points) Suppose you purchased ten 3 year GS on January 1 in 2015 where the interest rate is 1.11% (not shown in graphic). The coupon payment is 5% and you hold these ten 3 year GS for one year, receive one coupon payment, and sell, what is now ten 2 year GS on Jan. 1, of 2016 when the rate on these 2 year GS is 1.07% (as it is at point A on first graphic). Calculate the profit or loss and rate of return. 2. (30 points total) a) (5 points) On January 1, 2016, the yield on the 1 year GS was .66%. Calculate the one year rate expected one year from now (in year 2....notation = i12e) . b) (5 points) On January 1, 2016, the yield on the 3 year GS was 1.35%. Calculate the one year rate expected two years from now (in year 3....notation = i13e). c) (5 points) As we can see, the yield on the 2 year and 3 year GS fell between Jan 1, 2016 and February 12, 2016. On February 12, 2016, the yield on the one year GS was . 51%. As you did in part a) above, calculate the one year rate expected one year from now (in year 2....notation = i12e) given the conditions on February 12, 2016. d) (5 points) As you did in part b) above, calculate the one year rate expected two years from now (in year 3....notation = i13e) given the conditions on February 12, 2016. e) (5 points) Compare your answers in part a) vs part c) and part b) vs part d) what has happened to the expected path of short term interests? What could have caused this development? Name three possibilities from the articles Job Market Leaves Fed in Limbo and Investors Cast Wary Eye on Fed Increases. f)(5 points) Now consider the movement from points B to points C on both graphics. What could cause such a movement in the 2 year and 3 year GS? Hint, the employment report came out on March 5, 2016. 2 3)(25 points) Use the information below to answer the following questions. a) (5 points) Using the Market Cap, calculate the most previous years earnings for Apple. b) (5 points) Now calculate the P/E ratio using the spot price of AAPL and the earning per share (EPS). Note, your answer will not match exactly (no worries). c) (5 points) Now calculate the market cap using the spot price and shares outstanding. Again, the numbers don't match exactly (no worries). d) (5 points) Suppose the stock of Apple rises to $120. What will happen to the Market Cap? Give me a number. e) (5 points) Assuming the spot price of Apple is $120, what will happen to the P/E ratio? Please give me the P/E ratio. 3