Identify and briefly describe an event that affected a range of financial markets in recent years. Illustrate how your identified event impacted financial markets and instruments traded on these markets, for example, the impact on the equity markets, bond markets, FX markets etc. Analyse how prices and/or demands of financial instruments have been affected.

/in /by

An evaluation of the impact of a recent event on financial markets

1. Identify and briefly describe an event that affected a range of financial markets in recent years. This event should be non-company specific and occurred within the past ten years.

2. Illustrate how your identified event impacted financial markets and instruments traded on these markets, for example, the impact on the equity markets, bond markets, FX markets etc. Analyse how prices and/or demands of financial instruments have been affected. You can use factual (statistical and/or financial) information to aid your discussion.

3. Research and discuss what measures financial institutions and financial intermediaries have taken to manage the crisis or consequences caused by your identified event. Discuss the intended and/or actual effects of these measures in mitigating the impact on the financial markets and economies.

4. Your essay should be well structured (use suitable section headings where appropriate), original (eg. no copy and paste), written with clarity, coherent, correctly referenced (both in-text and in the Reference list), and free from grammar and spelling mistakes.

Calculate the Cost of Equity, using the Beta from Yahoo!, then apply Beta to the Equity Risk Premium and add the Risk-Free Rate for the Cost of Equity. 4). Compare your company’s Cost of Equity to its Return on Equity and determine the Spread between them. What does this Spread tell you?

/in /by

Personal Finance Project

Project Instructions
1). Go to Yahoo! Finance, Mergent or other source to retrieve financial data (Income Statement, Balance Sheet and Statement of Cash Flows) for a company of your choice to analyze.
2). Examine the ratios for your company’s Liquidity, Asset Management, Debt Management and Profitability/Returns.
3). Calculate the Cost of Equity, using the Beta from Yahoo!, then apply Beta to the Equity Risk Premium and add the Risk-Free Rate for the Cost of Equity.
4). Compare your company’s Cost of Equity (from above) to its Return on Equity (from 2 above) and determine the Spread between them. What does this Spread tell you?

In three to five pages, summarize your company’s financial health and comment on whether you think it is adding value through its investments (assets) and financing choices (debt and equity). Use the news articles you researched about your company to give specifics.

Be sure to include pdf’s of the information you retrieved (articles) and the Excel workbook used for your calculations.
Project – Principles – blank.xlsx –
Project – Principles – Starbuck example.xlsx –
Here are the steps to download financial statements from Mergent:
Mergent Steps to download Financial Statements.docx –
Here are the steps to download stock price data from Yahoo! Finance and into your Project.

Steps to download Stock Price information from Yahoo Finance.docx

Here are two parts for video instructions:

Part 1 – https://nv.instructuremedia.com/fetch/QkFoYkIxc0hhUVFoTExjWk1Hd3JCMUhHWW1JPS0tZWNhNGRlYmJhY2YxZjllOWEwYjdlMmY5MGIyMGEyODFjNTM2MjM3Yw.mp4

Part 2 – https://nv.instructuremedia.com/fetch/QkFoYkIxc0hhUVRuRTVZYU1Hd3JCMUhHWW1JPS0tMmU4NTkwOTliZTgxZmJjNzg4ODI4ZTAwNWE1OTk4NTkyM2ZhOWIxOQ.mp4

Use the data on the composition of US foreign assets and liabilities in Table 1.3. What fraction of the US overseas assets in direct and portfolio investment were made up of equity at the end of 2016? What fraction of foreign direct and portfolio investment into the US was made up of equity at the end of 2016?

/in /by

International Trade

 

Total Points: 115

 Use the Turnitin links provided. First, convert your Word, STATA (log files), excel worksheets, and any other file you worked with, to pdf files.   Second, compile all your different pdf files into a unique pdf file. Use Adobe Acrobat, which allows merging different pdf files into one file.  Finally, name the pdf file “YOUR_FIRST_AND_LAST_NAME”.

 

Note: All data files are provided in STATA and EXCEL. The dataset in STATA contains the variables’ description (type “describe” in the command window). Get familiar with the structure of the data and the content of the dataset. Make sure you understand the information contained in each variable.

 

QUESTION 1 (Lab Work III). Chilean Exporters. 10 POINTS. Use “data-set-PS2-Q1.dta” to explore facts about exporters in Chile. These data are establishment-level data from the Chilean Annual Manufacturing Survey (ENIA), for the year 2000. You will document two facts: Fact 1) Exporters are larger than non-exporters; Fact 2) For most exporters, export activities are done at a low intensity. Attach the LOG file with your work.

The goal of this question is to get students to construct their own empirical evidence to clearly convey an argument to support a theory or a policy. Additionally, the question will get students familiar with firm-level data.

 

Fact 1

  1. 5 points. First, using the command “gen”, construct a dummy variable that equals 1 if the establishment has positive exports and zero if it has zero exports. Name it “d_exporter”. Second, using the command “gen”, construct export intensity as export sales divided by total sales of the establishment. Name this variable “export_intensity”. Finally, construct the log of total sales and the log of total employment. Name these variables, respectively, “log_sales”, and “log_employment”.

 

  1. 5 points. Use the command “kdensity” to plot the log of sales for exporters and non-exporters, respectively, in the same graph. Repeat the procedure for log of employment. You should have two graphs. Interpret each graph.

Fact 2

We will first restrict the sample to exporters only: keep observations where “d_exporter = 1” using the command “keep if”.

 

  1. 5 points. Use the command “kdensity” to plot “export_intensity”. Interpret. Where in the figure do you observe most of the establishments?

 

QUESTION 2. Trade Policy. 10 POINTS (2.5 points each). Choose one and only one answer.

 

  1. If a good is imported into (large) country H from country F, then a tariff in country H
  2. Raises the price in country H and cannot affect its price in country F.
  3. Lowers the price of the good in both countries.
  4. Lowers the price of the good in H and could raise it in F.
  5. Raises the price of the good in H and lowers it in F.
  6. None of the above.

 

  1. A lower tariff on imported steel would most likely benefit
  1. Foreign producers at the expense of domestic consumers.
  2. Domestic manufacturers of steel.
  3. Domestic consumers of steel.
  4. Workers in the steel industry.
  5. None of the above.

 

  1. The main redistribution effect of a tariff is the transfer of income from
  1. Domestic producers to domestic buyers.
  2. Domestic buyers to domestic producers.
  3. Domestic producers to domestic government.
  4. Domestic government to domestic consumers.
  5. None of the above.

 

  1. An important difference between tariffs and quotas is that tariffs
  2. Raise the price of the good.
  3. Generate tax revenue for the government.
  4. Stimulate international trade.
  5. Help domestic producers.
  6. None of the above.

 

QUESTION 3. Intertemporal trade. 25 points. [HARD]. Consider a two-period economy.  The representative agent has preferences represented by a utility function of the form . The agent is endowed with  units of the good in period 1 and y2 units of the good in period 2. Let  denote the return on a one-period bond, and  denote the quantity of bonds.

 

  1. 2 points. Write out the budget constraint for period 1 and a separate budget constraint for period 2.
  2. 2 points. Combine the two per-period budget constraints to form the intertemporal budget constraint.
  3. 4 points. Write out the consumer’s maximization problem (maximize utility subject to the intertemporal budget constraint. Take the first order conditions and derive the Euler Equation. [Hint: the Euler equation relates marginal utility in the two periods to 1+ the interest rate.]

 

  1. 4 points. Derive the consumer’s choice of consumption in the first period, , consumption in the second period, , and the amount of borrowing or lending b, as a function of y1, y2, and r.

 

  1. 4 points. Suppose that , , and .  What is the interest rate, , in the closed economy? What is the value of ?

 

  1. 3 points. Suppose there is another country, (the foreign country) whose preferences are identical to those in the first part of this question. This country has endowments of y*2 = 6 and , and   What is the interest rate in the closed foreign economy, ? What is the value of ?

 

  1. 3 points. When the home and foreign country open to trade, what will the world interest rate be?

 

  1. 3 points. Fill out the following table: (use the numerical values)
Time Home: Current Account Home: Financial Account
Period 1    
Period 2    

 

 

QUESTION 4. The Balance of Payments. 20 points. You are going to explore data from the Bureau of Economic Analysis (BEA) and variables related to national accounting.

 

Go to the BEA website: https://www.bea.gov/. Click on the tab “Tools” and select “Interactive Data”. Select “Int’l Transactions, Services, & IIP” under International Data. Click on “Begin using the data…” and download the following tables (in Excel or CVS format):

. Table 1.1: US International Transactions (from 1960, annual), located under the tab “International Transactions (ITA)”. Use the tab “Modify” to select all years available at annual frequency.

. Table 1.3: Change in the Year-end US Net international Investment Position (from 2003, annual), located under the tab “International Investment Position (IIP)”. Use the tab “Modify” to select all years available at annual frequency.

 

Go back to the “Interactive Data” page and select “GDP & Personal Income” under Domestic Data. Click on “Begin using the data…” and download the following table (in Excel or CVS format):

 

. Table 3.1: Government Current Receipts and Expenditures (from 1960, annual), located under the tab “Section 3: Government current receipts and expenditures”. Use the tab “Modify” to select all years available at annual frequency.

 

Work in Excel. Each question should be in a different clearly labeled tab. The data should be in the 3 first tabs (one for each of the tables above). Show your calculations.

 

The goal of this question is to get you familiar with the US Government agency that constructs the national account statistics. Most governments around the world have similar websites.

 

  1. 2 points. What was the US largest positive annual current account surplus since 1960, and in what year did this arise?

 

  1. 2 points. What was the US largest negative annual current account surplus since 1960, and in what year did this arise?

 

  1. 4 points. The United States ended 2002 with a net foreign debt of $2.4109 trillion. Use the data in Table 1.1 on the US current account balance to plot the evolution of the US’ net foreign debt implied by the path of the US current account balances over the period end of 2002 – end of 2016. Make sure to include a title and legend and clearly label the axis.

 

Note: To construct the US net foreign debt implied by the path of the US current account balances, over the given period, accumulate current account balances from 2003 to 2016, , and sum them to the net foreign debt of $2.4109 trillion accrued by the end of 2002.

 

  1. 4 points. On the same graph, plot the US net foreign debt, as estimated by the BEA in Table 1.3. Make sure to include a title and legend as well as clearly label the axis. How much did the flow of current account balances (calculated in c) contribute to the US’ net foreign debt by the end of 2016? Comment on what factors may have contributed to the difference between these two measures of the net US foreign debt.

 

  1. 4 points. Use the data on the composition of US foreign assets and liabilities in Table 1.3. What fraction of the US overseas assets in direct and portfolio investment were made up of equity at the end of 2016? What fraction of foreign direct and portfolio investment into the US was made up of equity at the end of 2016?

 

  1. 4 points. Use the data on the US government’s balance sheet in Table 3.1. Calculate the correlation between the US annual net government lending and the country’s current account balance over the period 1960 to 2016. Is there any relation? Should we observe a link between a country’s current account and government budget

 

QUESTION 5 (Lab Work IV). LOOP and Exchange Rates. 10 points. For this question, you will use the data on the Big Mac prices from the Economist, in “BigMac2000toJan2017-PS2-Q5.dta”. The file shows, for each country, the price of the Big Mac in local currency (“local_price”) as well as the nominal exchange rate observed at each date against the US$ dollar (“dollar_ex”) —our base currency. You will investigate whether (nominal) exchanges rate changes align with observed (nominal) exchange rate changes as predicted by the Law of One Price (LOOP). Attach the LOG file with your work.

 

  1. 1 point. Construct the nominal exchange rate, at each date and each country, as predicted by the Law of One Price (LOOP): Divide the price of the Big Mac in the local currency (“local_price”) by the price of the Big Mac in US$ (“local_price_us”). Call this variable “dollar_loop”. Use the command “gen”.

 

  1. 3 points. Pick a country from the file, except for the United States. Is the currency from your chosen country under-valuated or over-valuated according to our Big Mac Index, at each date? Use (-) for under-valuated and (+) for over-valuated. Proceed as follows: First, generate (“gen”) a dummy that is equal to 1 if “dollar_ex < dollar_loop” (meaning that the currency is overvalued) and equal to zero if “dollar_ex > dollar_loop” (meaning that the currency is undervalued). Second, use the commands “preserve”, “restore”, and “keep”, to keep data only from your chosen country. Finally, use the command “list” to visualize the outcome in your log file.

 

  1. 2 points. Calculate the depreciation/appreciation rate observed in the nominal exchange rate using “dollar_ex” and the command “gen”. Was the Big Mac Index a good predictor of future appreciations/depreciations of the currency? Why? Give two reasons.

 

  1. 4 points. Construct the “real exchange rate” using the Big Mac, for each country and each year: log qit = log pit – log eit – log put, where pit refers to the local price of the Big Mac in country i and year t (“local_price”); eit refers to the nominal exchange rate of the currency in country i against the US dollar in year t (“dollar_ex”); and put refers to the price of the Big Mac in the United States (in US dollars) in year t (“local_price_us”). Notice that, by construction, log qit =0 when i = USA. Use the command “gen”.

 

  1. Calculate the standard deviation (S.D.) of log qit, for each year in the period 2011-2016, across all countries and across the subset of countries that adopted the Euro, respectively. Did you observe any difference? Why? For these calculations, you will generate a dummy variable equal to one if the country belongs to the Euro zone, and equal to zero if it does not. To generate summary statistics, such as the S.D., you can use the command “sum” combined with the options “by” (by year), and “if” (whether the country belongs to the Euro zone or not).

 

  1. Price levels are linked to the level of development of countries. Plot the real exchange rate constructed in d) against real GDP per capita (relative to the United States), for the year 2014. First, calculate real GDP per capita relative to US’s as “rgdpl” divide by “rgdpl_us” using the command “gen”. Then, use the graph command “scatter”. Make sure to include a title and clearly label the axis. What correlation should we observe between these two variables according to the theory?

 

QUESTION 6. The Balassa-Samuelson Effect. 25 points.  The United States (US) and India (IND) can both produce tradable (T) and non-tradable (N) goods.  Both goods are produced using only labor and according to the following production function

,where j = T, N and I = US, IND. Labor productivities in year t for each good in each country are .

Assume the LOOP holds for traded goods but not for non-traded goods and that both goods are sold in competitive markets. The price of the traded good in year t is .

  1. 4 points. Using the condition that states that wages are equal to the value of the marginal product of labor, in the tradable sector, solve for the wage in the United States.

 

  1. 4 points. Using the condition that states that wages are equal to the value of the marginal product of labor, in the non-tradable sector, solve for the price of non-traded goods in the United States.

 

  1. 3 points. Solve for the wage and the price of non-traded goods in India. [Repeat the procedure in a) and b) for India.]

 

  1. 4 points. Consumers in the United States spend 50% of total expenditure on traded goods and 50% of total expenditure on non-traded goods. Assume that the price of traded goods in the base year is 1 and the price of non-traded goods in the base year is also 1. Compute the Consumer Price Index (CPI) in year t for the United States, CPIt,US. Show your work.

 

  1. 4 points. Consumers in India, however, spend 75% of total expenditure on traded goods and 25% of expenditure on non-traded goods. Assume that the price of traded goods in the base year is 1 and the price of non-traded goods in the base year is also 1.  Compute the CPI in year t for India, CPIt,IND. Show your work.

 

  1. 3 points. Define absolute PPP. If the exchange rate between the Rupee (India’s currency), and the U.S. dollar is 1, does absolute PPP hold in period t?

 

  1. 3 points. In year t+1, India becomes more productive at producing traded goods, so that productivity in the tradable sector becomes. What is the price of non-traded goods in India in year t+1?

 

QUESTION 7. Increasing Returns to Scale and Monopolistic Competition. 15 points. A country produces manufactured goods, whose industry is characterized by increasing returns to scale, monopolistic competition, and firms that differentiate their products.  Firms are symmetric: all firms have identical cost functions and demand functions given below.

where  is the quantity demanded when the total industry demand is , the number of firms in the industry is , the average price in the industry is  and the price charged by the firm is , is the total cost of producing   units, is the fixed cost of production, and  is the marginal cost of production. Assume that does not change with the price in the industry.

 

  1. a) 3 points. Derive an equation that relates average cost to , , , and .  That is, derive an equation with  on the left-hand side and , ,  and  on the other. Hint: firm symmetry implies that each firm charges the same price.

 

  1. b) 3 points. Derive an equation that relates marginal revenue to , and .  Hint: use demand to get P in terms of Q then multiply by Q to get total revenue.

 

  1. c) 1 point. To maximize profits, firms set marginal revenue equal to__________.

 

  1. d) 3 points. Given your answers to b) and c) derive an equation that relates to ,  and .

 

  1. e) 2 points. Sketch the equations from a. and d. below. Label the equilibrium number of firms and the equilibrium price .
  2. f) 3 points. Suppose the country opens to trade, which leads to a larger market size, . Show the effect of this on your graph from e., labeling the new price and the new number of firms .  Clearly label any curves that shift, and in which direction they shift.

Determine your retirement goals. Create a debt retirement plan that will pay off all debt before you retire. Develop your savings and investment plan. Estimate your sources retirement income and assets available at the time you retire, and determine how you plan to use your assets in retirement.

/in /by

Retirement plan

Write a 3 to 4 page essay with an introduction, discussion, analysis and conclusions. Failure to follow these instructions will result in a grade of 50% or less. Also, numbered responses to the guidelines are no considered an essay. Feel free to use someone else’s financial information or make up the data. The point of these assignments is to go through
the process and complete the analysis.
Also, numbered responses to the guidelines are not considered an essay.

1. Determine your retirement goals
a. When do you plan to retire?
b. Think about how long you and your spouse will live in retirement.
c. Where do you plan to live?
i. Will you keep your home?
ii. Will you downsize?
iii. Will you move into a retirement community?
iv. Will you or your spouse require long term care?
d. Estimate your retirement needs.

2. Create a debt retirement plan that will pay off all debt before you retire.

3. Develop your savings and investment plan

a. Identify sources of retirement.
i. Social Security
ii. Pension Plans
iii. IRA
iv. other

b. How will you need to save?
c. Determine your investment philosophy?

4. Estimate your sources retirement income and assets available at the time you retire. Also, determine how you plan to use your assets in retirement.

What would you contribute to the cohort and to the College Community? How would you use your degree to make a positive impact?

/in /by

Specific Questions

1. What would you contribute to the cohort and to the College Community?
2. How would you use your degree to make a positive impact?
3. Proudest Achievement/Moment?
4. Additional Information

Do you think the punitive fines the courts are ordering Goldman Sachs to pay are sufficient to make up for the wrongdoing? Do you think Goldman Sachs ought to be held more directly accountable for its role in the 1MDB corruption scandal?

/in /by

Finc Dis

In 2009, just four months after Najib Razak was elected Prime Minister of Malaysia, 1Malaysia Development Berhad (1MDB) was created. The wealth fund was established for development projects to better serve the people of Malaysia, but it ultimately became a slush fund for the country’s leaders and their associates.

Goldman Sachs, a Wall Street giant, admitted that their Malaysian unit paid USD 1 billion in bribes to foreign officials and misled investors to raise over USD 6.5 billion in bond sales, for which the bank earned USD 600 million in fees. Despite having protocols in place to prevent fraud and corruption, prosecutors found that employees at Goldman often overlooked or ignored obvious red flags.

Criminal charges revealed that Jho Low, a Malaysian financier, conspired with Goldman banker Tim Leissner in a deal where they, along with Prime Minister Najib Razak, laundered the 1MDB funds through U.S. banks. The money was then used to purchase lavish items, such as a mega-yacht in Bali, paintings by van Gogh and Monet, a boutique hotel in Beverly Hills, a share of the EMI music publishing portfolio, and to finance the movie “The Wolf of Wall Street.” In total, an estimated USD 4.5 billion was looted from 1MDB.

Goldman Sachs’ history has been filled with scandal. During the 2008 global financial crisis, the bank, nicknamed the “great vampire squid,” earned a reputation for its ruthlessness, which resulted in a USD 5 billion fine—after the bank received a USD 10 billion bailout from the government. This is the first time, however, that one of the bank’s foreign units has gone before a U.S. judge and admitted it was guilty of a crime.

Why Is It News?

In July 2020, Goldman Sachs settled with the Malaysian government, agreeing to pay fines that will total USD 3.9 billion in order to absolve the bank of all other criminal charges. The settlement includes USD 2.5 billion in a payment directly to the Malaysian government and another USD 1.4 billion from assets seized by governments around the world (meaning those funds won’t come directly from Goldman). In mid-October, 1MDB pled guilty and agreed to pay USD 2.9 billion to the United States and announced that Goldman will recoup or withhold USD 174 million in compensation awarded to bank executives. After each settlement, stock in Goldman Sachs went up.

Dennis M. Kelleher of Better Markets, a Wall Street watchdog, claims the settlement is “virtually meaningless” and that a more serious penalty would be the appointment of an independent monitor of the bank’s compliance procedures. He also suggests that a guilty plea by the bank itself would be more fitting, as opposed to one from its Malaysian subsidiary.

Then answer the questions below. In your initial response to the topic you have to answer all questions:

Do you think the punitive fines the courts are ordering Goldman Sachs to pay are sufficient to make up for the wrongdoing?
Do you think Goldman Sachs ought to be held more directly accountable for its role in the 1MDB corruption scandal?
This isn’t the first corruption scandal Goldman Sachs has been involved in. How do you think the bank should move forward in regaining public trust?

Reflection – the students also should include a paragraph in the initial response in their own words, using finance terminology, reflecting on specifically what they learned from the assignment and how they think they could apply what they learned in the workplace or in everyday life.

Write about your experiences trading with the CoinMarket Cap trading simulator. What changes had the greatest impact? If you had to do it all over again, what would you change?

/in /by

Term Fins

Write about your experiences trading with the CoinMarket Cap trading simulator. Your paper should be no longer than three pages (about 900 words). Include a cover sheet and, if appropriate, a references page. Format your paper in accordance with the APA style manual (7th edition).

The following outline is an example of how you might organize your paper:

• Cover Sheet
• Executive Summary

• Content
o What decisions you made and the rationale for those decisions
o What factors prompted you to action when you… ▪ bought?▪ sold?

▪ made an exchange? • Conclusion
o Results of your cryptocurrency portfolio

▪ What changes had the greatest impact?

▪ Lessons learned:

If you had to do it all over again, what would you change?

Describe (in words) the distribution of replicating errors. Make a plot of this distribution. Describe (in words) the value of the replicating portfolio and the value of the theoretical call as a function of the underlying at time T. Make a plot of the value of the replicating portfolio and the value of the theoretical call as a function of the underlying at time T.

/in /by

PROJECT

Hedging Fixed Indexed Annuities
About the Product
Insurance companies offer sophisticated retirement planning products to their clients.
One of these products is a “Fixed Indexed Annuity.” In this contract, the investor’s account has a credited return that is a function of stock index returns.
In many of these contracts the investor’s credited return might be “floored” at zero and perhaps “capped” at some amount. For example, if the stock market returned 5.00% in a year, the contract makes 5.00% but if the market returns a negative amount, the credit would be zero.
There is also the concept of a “participation rate.” This means that the investor’s crediting rate might be some percentage of stock returns. ney stays on deposit at the Insurance Company. Any returns made by the investor are a liability for the company; hence, the company must hedge this risk.
The various terms of these contracts can be quite complex. In our case, we will keep it as simple as possible, and then investigate the hedging aspects in this study.

About the Project
This project is an Excel spreadsheet based project. You are welcome to work together in small groups; however you must turn in your own version of your workbook. Please
don’t collaborate with students from past semesters. We will be tying together a number of relevant financial topics while investigating the “replication of risk” concept.

1. Simulate an arbitrary number of Geometric Brownian Motion pathways. You’ll probably want to simulate at least 1,000 paths. Each path depends on a set of randomnumbers, a constant volatility and default-free rates. This is a simulation for the underlying stock index, S(t) up until a terminal time T. (No dividend yield.)

2. Along each pathway, model the value of a theoretical (Black-Scholes) call option on S, with a strike K. Also model the delta of this option at each time step. This will represent the embedded option in the FIA contract. We will be simulating the performance of uncapped returns with a participation rate.

3. Now replicate the value of the long call by simulated trading the underlying. Also make sure you keep track of cash. In other words, construct a replicating portfolio. This is driven by the equation 𝑐 = Δ𝑆 + 𝐵. This is equivalent to: 𝑐𝑎𝑙𝑙 𝑜𝑝𝑡𝑖𝑜𝑛 = (#𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠)($ 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒) + (𝑐𝑎𝑠ℎ 𝑎𝑐𝑐𝑜𝑢𝑛𝑡) At each time step, make an appropriate trade that serves to adjust your stock position, all the while earning interest on credits or paying interest on debits.

4. For each simulated pathway, set aside the terminal value of the replicating portfolio, the terminal value of the underlying and the terminal value of the theoretical call option. The difference of the portfolio and the call option is “replicating error.”
• Describe (in words) the distribution of replicating errors.
• Make a plot of this distribution.
• Describe (in words) the value of the replicating portfolio and the value of the theoretical call as a function of the underlying at time T.
• Make a plot of the value of the replicating portfolio and the value of the theoretical call as a function of the underlying at time T.
• Investigate the effect of changing the crediting rate, interest rates, volatility, etc.

Calculate and interpret the return on assets using the Dupont Method for the four years of data. Calculate and interpret the return on equity using the Modified Dupont Method all four years of data.

/in /by

Personal Finance Application

Part A: Ratio Analysis (6 slides)

Attached are the financial statements for Smith Company, Inc. Use the financial statements to answer the questions below

Calculate and interpret the return on assets using the Dupont Method for the four years of data.

Calculate and interpret the return on equity using the Modified Dupont Method all four years of data.

Information for calculating the ROA and ROE using the Dupont Method for three competitors to Smith Company, Inc. is also provided below. You will use this information in Part D.

Part B: Stock Valuation (6 slides)

Use the information provided to calculate the required rate of return on four stocks. Use both CAPM and the Dividend Discount Model. The market return is expected to be 8.5% and the risk-free rate is 2.0%.

 

Part C: Dividend Policy (3-4 slides)

Use the information provided to discuss the dividend policy of the four listed firms over the past four years.

 

Part D: Analysis (3-4 slides)

You are working as a financial analyst. Your manager has asked you to prepare a presentation on whether Smith Company, Inc. is a good investment opportunity. Prepare a presentation, a minimum of one slide for each part, summarizing your results. You should submit either an Excel or Word document showing your work for each part

What type of indexes are the S&P 500, DJIA, and NASDAQ Composite? What factors influence the performance of these indexes? Is there a difference between the performances of S&P 500, DJIA, and NASDAQ Composite over these two years? If so, explain the factors that contribute to those differences.

/in /by

FInc paper

Part 1: Bond Performance Analysis and Interest Rate Trends (40% of the project grade) Based on the course material presented in Week 3

The information on bonds can be found on the Bond section of the FINRA Market Data Center. To find the information on bonds, click on Search tab in the middle of the screen (under Market Center Bond Guide). Under Quick Search, complete the Issuer Name and Symbol fields, then click Show Results.
If you cannot find a particular bond on the FINRA site, check the Bonds page on Markets Insider. To find information on bonds, scroll down the page, type the name of the company in the window under Bond Finder, then click on the magnifying glass.
Find quotations of five to eight corporate bonds that contain a price under “Last Sale” and Ratings of Moody’s and Standard & Poor’s (S&P) 500. Not all companies list their bonds on this website. You can use bonds from the same company or choose different companies. Choose the bonds with different maturities, different coupon payments, and so on. Be creative!
1. To grade your project your professor needs to see the information on the bonds you chose. Copy the bonds quotations into your project.
2. What were the last prices of the bonds (from the Last Sale column)? What does this price mean?
3. Assume the par value of the bond is $1,000.
a. How much will an investor pay for a bond purchased at the price listed in the Last Sale column?
b. Calculate the annual coupon interest payments. Show your work in your project.
4. The YTM is listed in quotations of the bonds (in the Last Sale column, Yield). What does it mean? (No calculations are required for this section.)
5. Calculate the Macaulay duration and modified duration of these bonds. Use an online duration calculator. Present the results of your calculations in your project.
How will changes in interest rates affect the bonds’ prices?
6. Using the forecast of interest rates (short-term and long-term) that you found in Stage 1 of the project, create a forecast of the bonds’ prices. Explain your results.

7. Write at least two pages of analysis of the bonds. Answer the following questions, explaining each answer.
a. If you are going to buy a bond, which bond would you choose? Why?
b. What connections are there among economic trends analysis, bond market performance, and investment decisions? Discuss these connections.
c. Look at the balance sheet and income statement of the companies. What data or ratios support your decision to buy this bond or not?

Part 2: Stock Market Indexes (40% of the project grade)
Based on the course material presented in Week 5
In this part of the project, we will investigate three stock market indexes: S&P 500, Dow Jones Industrial Average (DJIA), and the NASDAQ Composite.
From the Yahoo! Finance home page:
• Click on “S&P 500” on the front page. The original graph shows the index for the current business day.
• Change the view to the full screen, then change the view to two years (2Y).
• Using the +Comparison button above the graph, add DOW and NASDAQ to the graph to show the percentage change for each day relative to the first day (2 years ago) and the level of each index.

Write a report (minimum two pages, double-spaced) analyzing the results you received. At a minimum, respond to all of the following:
• What type of indexes are the S&P 500, DJIA, and NASDAQ Composite?
• What factors influence the performance of these indexes?
• Is there a difference between the performances of S&P 500, DJIA, and NASDAQ Composite over these two years? If so, explain the factors that contribute to those differences.
• Using the forecast of economic conditions and trends you found in Stage 1 of the project, what tendency of the levels and percentage changes of these indexes do you expect in the short term and in the long term?
• Will these findings change your decision to buy the bond you chose in Stage 1 of this project, versus investing in stock market or in both? Explain your answer.

Part 3: Reflection (5% of the project grade)
Write a paragraph in your own words reflecting on what you learned from the assignment and how you think you could apply what you learned in the workplace or in your everyday life.