is 30%. What is the return on assets of Google‚ Inc.(No more than two decimals in the percentage interest rate‚ but do not enter the % sign.) Answer for Question 3 Question 4 (10 points) Suppose CAPM holds‚ and the beta of the equity of your company is 2.00. The expected market risk premium (the difference between the expected market return and the risk-free rate) is 4.5% and the risk-free rate is 3.00%. Suppose the debt-to-equity ratio of your company is 20% and the market believes that the
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Question 1 Consider an option on a non-dividend-paying stock when the stock price is $30‚ the exercise price is $29‚ the risk-free interest rate is 5% per annum‚ the volatility is 25% per annum‚ and the time to maturity is four months. a. What is the price of the option if it is a European call? b. What is the price of the option if it is an American call? c. What is the price of the option if it is a European put? d. Verify that put–call parity holds. Question 2 Assume
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of Interest Rate Risk Supporting Document to the New Basel Capital Accord Issued for comment by 31 May 2001 January 2001 Superseded document Superseded document Table of contents SUMMARY .............................................................................................................................................. 1 I. SOURCES AND EFFECTS OF INTEREST RATE RISK ............................................................. 5 A. SOURCES OF INTEREST RATE RISK ..
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Interest Rate Risk (IRR) Management What is Interest Rate Risk : Interest rate risk is the risk where changes in market interest rates might adversely affect a bank’s financial condition. The management of Interest Rate Risk should be one of the critical components of market risk management in banks. The regulatory restrictions in the past had greatly reduced many of the risks in the banking system. Deregulation of interest rates has‚ however‚ exposed them to the adverse impacts of interest rate
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1. Estimate of the risk-free rate pf interest ("U.S. 10-year Treasury" bond rate = 4.78%. Assumed Market Risk Premium = 7.5%. 2. IBM Stock Information a. IBM’s Beta = 1.64 b. IBM’s current annual dividend = $0.80 c. IBM’s 3-year dividend growth rate (g) = 8.2% d. Industry P/E = 23.2 e. IBM’s EPS = $4.87 3. With the information you have‚ use the CAPM to calculate IBM’s required rate of return or ks. CAPM: ks = RF +{ (kM Krf) x Beta} = ks = 4.78% + {7.5% x 1.64) = 17.08% ks
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MIDTERM EXAM SUNDAY‚ OCTOBER 20‚ 2013 CONCLUDE LECTURE 4 THE SHARPE SINGLE INDEX MODEL SHARPE MODEL’S APPLICATION TO PORTFOLIO MANAGEMENT THE MODEL’S ASSUMPTIONS [ARE THEY REALISTIC?] ESTIMATING THE MODEL PARAMETERS RELIABILITY OF THE ESTIMATES IMPROVING THE MODEL SHARPE VERSUS NAÏVE DIVERSIFICATION [BODIE Appendix 6A +] REFERENCE: BODIE 6th ed.‚ CHAPTER 9‚ SECTIONS 9.1-9.5 AN APPLICATION OF THE SHARPE SINGLE INDEX MODEL A Disciplined Stock Selection Strategy REQUIRED READING 1
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6.1 Risk Structure of Interest Rates 1) The risk structure of interest rates is A) the structure of how interest rates move over time. B) the relationship among interest rates of different bonds with the same maturity. C) the relationship among the term to maturity of different bonds. D) the relationship among interest rates on bonds with different maturities. 2) The risk that interest payments will not be made‚ or that the face value of a bond is
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Interest Rate Risk in Islamic Banking Introduction Many countries‚ especially those with a substantial number of Muslim citizens operate a dual banking system. This system has both the Islamic and conventional banking systems which cater for the needs of both the Muslim bankers and the non-Muslim bankers. In a conventional and theoretical banking system‚ it would be expected that a change in the banking interest rates would yield a responsorial change for customers in the event that the customers
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Figure 7: Relation between yield and CALL RATE …………………………..……..28 Figure 8: Relation between yield and GDP ……………………………………..……29 Figure 9: Relation between yield and rupee per dollar ………………….....................29 EXECUTIVE SUMMURY The purpose of this paper is to provide an overview of recent developments in Indian interest rate yield structure and to describe some of the major factors which have driven these developments. Short-term interest rates have emerged as the key indicators of
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Free exchange Savers’ lament The complex effects of low interest rates on consumption and investment Dec 1st 2012 | from The Economist print edition WHEN interest rates hit double digits in the late 1970s‚ house-builders sent planks of wood to the Federal Reserve in protest. With rates stuck near zero‚ the protests now come from the opposite direction. The retired complain of a “war on savings”. The Fed cut rates to current levels at the end of 2008 and has promised to keep them there until
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