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Capital Markets Practice Midterm 1
发布时间：2023-05-30
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Capital Markets Practice Midterm 1
Question 1 (38 points)
In this Exam’s Excel file’s Q1 worksheet, you will find forecasted financial data for company DEF. Using these forecasts, answer the following questions.
Assume that DEF’s tax rate is 21%.
a) What are firm DEF’s free cash flows for years 1-5?
b) If DEF has a CAPM firm beta of 1.3, the risk-free return is 0.8%, and the market risk premium is 5%, what is DEF’s firm discount rate?
c) Given (1) and (2) what is DEF’s discounted cash flow stock market capitalization? Assume a terminal growth rate of 2%.
Question 2 (40 points)
You are given historical return data for two mutual funds, GSSBX and FNTSX, in this exam’s data Excel file Q2 worksheet.
Assume a risk-free rate of 2.96%.
a) What are the annualized expected returns for the two mutual funds?
b) What are the annualized standard deviations for the two mutual funds? When calculating the standard deviation use the =STDEV(data range) function.
c) What is the correlation between the two mutual funds?
d) What is the expected return, standard deviation, and Sharpe ratio of a portfolio that has 60% invested in GSSBX and the remainder in FNTSX?
e) Assume the portfolio you created in (d) is the tangent portfolio for all possible portfolio’s created from these funds. If an investor wants their optimal portfolio to have a risk level (standard deviation) of 10%, what is their implied y*?
f) What are that investor’s optimal investment weights in the risk-free asset and the two mutual funds?
g) What is the expected return of this investor’s optimal portfolio?
h) What is the Sharpe ratio of this investor’s optimal portfolio?
Question 3 (21 points)
Please state whether each of statements are true, false or uncertain and why.
a) When submitting a limit-buy order, your limit price must be lower than the market price at that point in time.
b) Market orders are always preferred over limit orders because market orders are executed more quickly.
c) When you short sell a stock, you are borrowing money (cash) from your broker.
Question 4 (30 points)
You are given the following information on three US government riskless bonds:
• A four-year zero-coupon bond with a yield to maturity of 3.25%.
• A 25-year 7.5% coupon bond with a price of $952.
• A 30-year 10% coupon bond with a price of $704.
I must see your own calculations; you cannot simply cut and paste your answer from another worksheet. If you do, you will not receive credit for this question.
a) What is the duration for each of these bonds?
b) What is the duration of a portfolio of these bonds that is long 1 16.2% in the 4-year zero-coupon bond, short 91.0% in the 25-year coupon-bond and long 74.8% in the 30-year coupon bond? Round your answer to one decimal place.
c) What would be the rationale to invest in a portfolio like that in (b)?
