Question

Question 1: (10 marks) 1. If you deposit $100 in one year, $200 in two years, and $300 in three years, how much will you have in three years? How much of this is interest? How much will you have in five years if you do not add additional amounts? Assume a 7% interest rate throughout. (3 marks) Bond has a face value of $100 with coupon rate of 14% paid semi-annually, the yield to maturity is 16%. what is the bond price? What is the effective annual yield on this bond? (3 marks) 2, 3. What is the expected return on this portfolio? What is the beta of this portfolio? Does the portfolio have more or less systematic riskthan an average asset? (4marks) Security Share A Share B Share C Share D Amount invested Expected return $1000 $2000 $3000 $4000 8% 12% 15% 18% Beta 0.8 0.95 1.10 1.40

Answer 1

Answer 1

					Investment time
Sum deposited in 1 Year				100	2 Year
Sum deposited in 2 Year				200	1 Year
Sum deposited in 3 Year				300	0 year
Rate of interest				7%
Future value = Present value * (1+r)^n
future value of $100 = 100 * (1+0.07)^2 =					114.49
future value of $200 = 200 * (1+0.07)^1 =					214
future value of $300 = 300 * 1 =					300
So, Amount having in three years will be					$ 628.49
Amount of interest = Future value -Amount deposited
	628.49 -100-200-300
	$        28.49
So, Interest amount shall be $28.49.
(b) Value in five year
					Investment time
Sum deposited in 1 Year				100	4 Year
Sum deposited in 2 Year				200	3 year
Sum deposited in 3 Year				300	2 Year
Rate of interest				7%
Future value = Present value * (1+r)^n
future value of $100 = 100 * (1+0.07)^4 =					131.0796
future value of $200 = 200 * (1+0.07)^3=					245.0086
future value of $300 = 300 *( 1 +0.07)^2=					343.47
So, Amount having in three years will be					$ 719.56