FIN 3300 Winter 2020 Final Exam Part 2
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FIN 3300
Winter 2020
Final Exam Part 2
The spreadsheet FinalFund.xlsx contains total monthly returns on a mutual fund called FinalFund as well as the CAPM and Fama-French factors rmkt − rf (called mktrf in the spreadsheet), SMB , HML, RMW, and CMA. We have seen SMB and HML in class, but Fama and French recently added RMW and CMA to the Fama-French 3-factor model to obtain the Fama-French 5-factor model. The new factors are constructed similarly to SMB and HML. The precise definitions of each factor are as follows (note that you do not need to know what the underlying accounting variables are to do this problem):
SMB = (return on the portfolio of small-cap U.S. stocks)
− (return on the portfolio of large-cap U.S. stocks)
HML = (return on the portfolio of U.S. stocks with high-book-to-market-value)
− return on the portfolio of U.S. stocks with low-book-to-market-value RMW = return on the portfolio of U.S. stocks with high accounting-profits
− return on the portfolio of U.S. stocks with low-accounting-profits
CMA = return on the portfolio of U.S. stocks with low investment in new projects
− return on the portfolio of U.S. stocks with high investment in new projects Units in FinalFund.xlsx are % per month.
1. Does exposure to market risk alone explain the returns on FinalFund?
2. Using the Fama-French five-factor model, does FinalFund appear to earn sig- nificant alpha?
3. Based on the regression, does the FinalFund appear to invest more in small-cap or large-cap stocks?
4. Does FinalFund appear to invest more in stocks with high accounting profits or low accounting profits?
5. Suppose $100-face value STRIPS yields for maturities of 0.5, 1, 1.5, and 2 years are currently 1%, 1.5%, 1.75%, and 2%, respectively. What is the price of a risk-free $100-face value, 2-year, 5%-coupon bond that pays semi-annual coupons?
6. Suppose $100-face value STRIPS yields for maturities of 0.5, 1, 1.5, and 2 years are currently 1%, 1.5%, 1.75%, and 2%, respectively. What is the yield to maturity of a risk-free $100-face value, 2-year, 5%-coupon bond that pays semi-annual coupons?
2022-12-11