FINE 442 Chapter Notes - Chapter 10: Risk-Free Interest Rate, Interest Rate Swap, Currency Swap
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Which following statement is INCORRECT?
When the market is not in equilibrium, the potential for ârisk-lessâ or arbitrage profit exists. | ||
The theories about how exchange rate always work out to be âtrueâ when compared to what students and practitioners observe in the real world. | ||
A forward exchange agreement between currencies states the rate of exchange at which a foreign currency will be bought forward or sold forward at a specific date in the future | ||
RPPP holds that PPP is not particularly helpful in determining what the spot rate is today, but that the relative change in prices between two countries over a period of time determines the change in the exchange rate over that period. | ||
While hedging can protect the owner of an asset from a loss, it also eliminates any gain from an increase in the value of the asset hedged against. |
A when-issued Treasury security involves
a. An on-the-run securityâs going off the run | ||||||||||||||||||||||||||||||||||||||||||||||||||
b. A forward contract in which a dealer promises to deliver anew Treasury security once it is issued | ||||||||||||||||||||||||||||||||||||||||||||||||||
c. The Treasuryâs promising to award a security to anoncompetitive bidder | ||||||||||||||||||||||||||||||||||||||||||||||||||
d. The Treasuryâs promising to award a security to a competitivebidder Helping to stimulate investor interest in Treasurysecurities is
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Compute the expected return of a portfolio given these three economic states, their likelihoods, and the potential returns:
Economic State Probability Return
Fast Growth 20.00% 30.00%
Slow Growth 50.00% 6.00%
Recession 30.00% -2.00%
Answer
| | 8.40% |
| | 11.33% |
| | 12.65% |
| | 15.47% |
Compute the standard deviation of a portfolio given these three economic states, their likelihoods, and the potential returns:
Economic State Probability Return
Fast Growth 20.00% 30.00%
Slow Growth 50.00% 6.00%
Recession 30.00% -2.00%
Answer
| | 1.28% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | 4.36% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | 7.82% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | 11.34% Year-to-date, Company O had earned -2.10% return. During the same time period Company V earned 8.00% and Company M earned 6.25%. If you have a portfolio made up of 40.00% Company O, 30.00% Company V, and 30.00% Company M, what is the overall portfolio return? Answer
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