financial modelling

financial modelling

QUESTION1

Calculate the yield to maturity of a 7-year $1,000 par value bond with an annual coupon rate of 7.5% and a current price of $1,125. Provide the spreadsheet solutions for both annual and semi-annual payments of interest. Comment on the relationship between the yield to maturity and the timing of interest payments, providing an appropriate table or graph.
QUESTION

PART 2

You are required to set up a worksheet (spreadsheet model) for the following problem:
Collect from Bloomberg (or Datastream, or Thomson ONE Banker, or Yahoo!Finance) ten years of end-of-year values of the Dow Jones Composite Average and end-of-year and last prices of any two of the Dow Jones Composite Average member stocks.

Assume that the Dow Jones Composite Average represents the market portfolio. Compute the excess return of each of the two stocks that you have selected against that of the Dow Jones Composite Average.

Use the short-term Treasury Bill rate as the risk-free rate in the Capital Asset Pricing Model (CAPM). Using the CAPM model and regression analysis provide the estimates of both systematic risk and theoretical return for selected two stocks. Provide a commentary on the reliability of the estimates of systematic risk you obtain. Explain which of the two stocks has more systematic risk.
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