Finance Homework

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Exam 3 Review Session

Chapter 10, 11, 15

5-2

How to determine your course grade • Quizzes - 10% (Average of the top 8 quizzes)

• Excel projects - 5% (Average of the two excel projects)

• Exam 1 - 25%; Exam 2 - 25%; Final Exam - 25%

• Final Project and Presentation - 10%

• Average of the report and presentation grades

• Teammate evaluation

• Extra Credits - 25%

93.4 or above = A 90.0 – 93.3 = A- 76.7 – 79.9 = C+ 63.4 – 66.6 = D 86.7 – 89.9 = B+ 73.4 – 76.6 = C 60.0 – 63.3 = D- 83.4 – 86.6 = B 70.0 – 73.3 = C- Below 60.0 = F 80.0 – 83.3 = B- 66.7 – 69.9 = D+

5-3

Extra credit opportunities

• CFA talk attendance – 2 points

• Industry analysis – max 3 points

• Portfolio contest – max 11 points

• 3 points if 5 trades are made each month

• 3 points for portfolio competition reflection

• 3-5 points for top 6 performers

• CFA ethics online class – 5 points

• In-class participation – max 5 points

5-4

Final exam

• Time and Date 10:15am-12:15pm - 05/18/18

• Location: 101 Bachelor Hall

• Additional office hours: 2 PM- 4 PM - 05/17/18

• 6 Problems

• Interest rate option strategy

• Option trading strategy

• Bond clean price & invoice price

• Horizon analysis

• Duration and convexity

• Duration hedging & CF hedging

5-5

Sample Questions

5-6

Sample Questions

5-7

Sample Questions

5-8

Sample Questions

5-9

Sample Questions

5-10

Bond prices between coupon dates*

Coupon Rate: 4.375% Matures: Nov 15, 2039

Settlement date 8/15/2011

Maturity date 11/15/2039

Annual coupon rate 0.04375

Yield to maturity 0.03697

Redemption value (% of FV) 100

Coupon payments per year 2

Flat price (% of par) 111.819

Days since last coupon 92

Days in coupon period 184

Accrued interest 1.094

Invoice price 112.913

1. So, we are now looking for the value of the bond as of period 0.5. We first need to calculate the PV of the cash flows as of the previous payment date (5/15/2011). Enter the data: N=57, I/Y=1.8485, PMT=21.875, and FV=1000. You will find PV=-1118.83

2. Now we need to find the future value of $ 1118.83 one-half of a period in the future: 1118.83(1.018485)0.5 = 1129.13, this gives us the "dirty" price of the bond.

3. To find the clean (quoted) price, we subtract the accrued interest from the dirty price: Clean Price = Dirty Price - Accrued Interest = 1129.13 - 21.875*0.5=111.819

*Please refer to “BAII Plus Bond Valuation” for detailed explanations.

5-11

Sample Questions

5-12

Sample Questions

5-13

Sample Questions

5-14

Sample Questions

5-15

Sample Questions