Finance and investment question
mandy57896Problem 1 (50 marks)
Using the Yahoo! Finance website, search the Bank of Nova Scotia (BNS.TO) by finding its stock symbol. If you are unable to locate the prices for BNS.TO, use prices for BNS (the Bank of Nova Scotia observed in US dollars at the New York Stock Exchange). For the purpose of this question, assume that the Canadian dollar and the US dollar had been exchanged one for one. Find historical prices for the stock (on the left-hand menu) and complete the following:
1. Download historical data for the stock prices (adj. close) from January 1, 2004 through January 1, 2012, on a monthly basis. You will also need to download corresponding monthly prices for the S&P/TSX Comp index (also available on the Yahoo! Finance site) as well as 3-month T-Bill rates (download this attachment: T-Bill Rates.xlsx).
2. Calculate returns for both series of prices downloaded from Yahoo site (BNS and S&P /TSX Comp Index). Prior to that, make sure the data is sorted in ascending order (i.e., first row has the oldest data). The final spreadsheet should have the two series of returns you downloaded and calculated from Yahoo! Finance. Make sure all data is expressed in same units.
3. Using the Tools menu in EXCEL, (Tool Pack has to be installed if EXCEL does not show it) perform regression analyses using the Market Model for BNS.
4. Clearly provide the regression results in a table with an explanation for the coefficients obtained, and clear interpretation. Specifically, for each regression provide:
· Dependent Variable
· Independent Variable
· Intercept
· Beta Value
· Firm Specific Risk
i. How well does the S&P/TSX Comp Index movement explain the variability of the return on BNS stock?
ii. What is the alpha of the BNS stock?
iii. Calculate the standard deviation of the stock return (using the equation for R2 =β2σM2/σ2, and the individual regression results).
iv. Calculate systematic risk and firm specific risk for the stock.
Problem 2 (15 marks)
A newly issued bond has the following characteristics:
Par value = $1000
Coupon rate = 8%
Yield to Maturity = 8%
Time to maturity = 15 years
Duration = 10 years
1. Calculate modified duration using the information above.
2. If the yield to maturity increases to 8.5%, what will be the change (in dollar amount) in bond price?
3. Identify the direction of change in modified duration if:
i. the coupon of the bond is 4%, not 8%.
ii. the maturity of the bond is 7 years, not 15 years.
4. How can you construct a portfolio with a duration of 8 years using this bond and a 5 year zero coupon bond?
You have been provided with the following information zero coupon bonds with $1000 face value.
Maturity - semi -annual periods
|
semi-annual spot rates
|
1 |
4.25 |
2 |
4.15
|
3 |
3.95
|
4 |
3.70
|
5 |
3.50
|
6 |
3.25
|
7 |
3.05
|
8 |
2.90 |
1. Compute the forward interest rates.
2. Graph the yield curve.
3. Explain the factors that account for the shape of the curve.
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FNCE 401v6 Assignment 2 Revised March 2014