Common Core CCGL9030
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Financial Crisis
Common Core CCGL9030
Individual Take Home Exam
Spring 2023
Question 1 (20 points)
Read the case on “Currency Wars” and answer the following TWO questions:
(a) What are the currency wars? (10 points, no more than ONE page)
(b) List and BRIEFLY explain two likely consequences of a currency war between two nations? (10 points, no more than ONE page)
Question 2 (10 points)
A rational investor will never pay a positive price for a stock of which the price keeps deviating above its fundamental value.
True or False. BRIEFLY explain. (10 points, no more than ONE page)
Question 3 (30 points)
The Excel file “Dataset for Take home December 2022” contains the monthly data for Hang Seng Index, the monthly price and rental indices for Residential, Office and Retail properties in Hong Kong from January 1993 to December 2022.
Consider the three major financial and pandemic crises in the last three decades below:
· Asia Financial Crisis 1997-1998
· Global Financial Crisis 2008Q1-2012Q3
· Pandemic 2020-2022
Following our discussion in class on measuring and gauging the impact of a financial crisis on asset prices, evaluate the impact of the THREE crises on:
(a) Hong Kong stock market. (10 points)
(b) Real estate market consisting of residential, office and retail sector. (20 points)
You can use graphs and/or tables to present your findings.
Question 4 (20 points)
In class discussion, the formation of an asset bubble is likened to a Ponzi scheme.
(a) What are the essential elements for the success of a Ponzi Scheme? (10 points, No more than ONE page)
(b) Do you see any similarities between the formation of a financial bubble and a Ponzi Scheme? Briefly explain. (10 points, No more than ONE page)
Question 5 (20 points)
Following our discussion in class on the design of mortgage-backed securities, consider the following Collateralized Mortgage Obligations (CMOs) with Tranche A and Tranche Z securities to be issued AT PAR. The mortgage payments from the mortgage pool and the cash flows to Tranche A and Tranche Z securities are all annual.
|
Mortgage Pool: $1,100,000; 5-years, fixed rate 10% |
|||
|
|
Stated Maturity |
Coupon Rate |
Amount Issued |
|
Tranche A |
3 |
9.0% |
$700,000 |
|
Tranche Z |
5 |
11.0% |
$300,000 |
|
Equity |
|
|
$100,000 |
|
Total Liabilities and Net Worth |
$1,100,000 |
||
The mortgage pool will receive mortgage payments from the borrowers. The annual mortgage payment to the pool consists of interest and principal as shown in the mortgage pool below.
|
Year |
Mortgage Pool |
Mortgage Payment to the Pool |
Interest Payment from the pool |
Principal Payment from the Pool |
Tranche A and Tranche Z Securities |
|
0 |
$1,100,000 |
|
|
|
$1,000,000 |
|
1 |
$880,000 |
$330,000 |
$110,000 |
$220,000 |
$780,000 |
|
2 |
$660,000 |
$330,000 |
$110,000 |
$220,000 |
$560,000 |
|
3 |
$440,000 |
$330,000 |
$110,000 |
$220,000 |
$340,000 |
|
4 |
$220,000 |
$330,000 |
$110,000 |
$220,000 |
$120,000 |
|
5 |
$0 |
$330,000 |
$110,000 |
$220,000 |
$0 |
(a) Determine the cash flows to be paid to Tranche A each year. (10 points)
(b) Determine the cash flows to be paid to Tranche Z each year. (10 points)
2023-04-28