You are required to set up a separate worksheet (spreadsheet
model) for each of the following four problems:
1) Calculate the yield to maturity of a 7-year $1,000 par value bond with an annual coupon rate of 5.25% and a current price of $1,200. Provide the solutions for both annual and semi-annual payments of interest. Comment on the relationship between the yield to maturity and the timing of interest payments, providing an appropriate table or graph.
2) Obtain from Bloomberg (or Datastream, or Thomson ONE Banker, or Yahoo!Finance) the beginning of month values for the period 2001-2015 of both the Dow Jones Utility Average Index and the PHLX Gold/Silver Sector Index. Assume that you are a risk-averse investor.
For each of the two assets represented by the indices, calculate annual returns and build a frequency distribution of annual returns. Provide graphs of the distributions.
Explore the risk-return relationship for the two assets. Plot your results on a graph with the standard deviation of annual returns of each asset on the horizontal axis and the average annual return on the vertical axis, and comment on which asset performed better.
Assume that you form a portfolio by investing equal amount of money in each asset. Determine the average and standard deviation of the portfolioâ€™s annual returns. Provide your interpretation of the risk and return of the equally-weighted portfolio compared to those of the individual assets.
Calculate and graph the average annual returns and standard deviations of all portfolios that are combinations of Dow Jones Utility Average and PHLX Gold/Silver Sector with the proportion of the Dow Jones Utility Average being 0, 10, 20, 30, 40, 50, 60, 70, 80, 90, 100%. Comm
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