• (1+11/2)2-0.5 (1+12/2)2-2 P CF₁ CF₂ - + + + CFT CF1 CF2 = (1+ytm/2)1-2 (1+ytm/2)2-2 + + (1+r7/2)1-2 CFT (1+ytm/2)1-2 + P= (w1, 1,, Wn) ⇒ Duration: = w₁ D₁+w2 ⋅ D₂+ ... + Wn · Dn AP/P-Durp Ay . •AP/P-Durp Ay + ½ Convexity (Ay)² wo . • ΨΑ = where w = 1+wo(1-BA) αA/02(EA) E(rm-rƒ)/0²(rm)* WM = 1 - WA. • t-statistic = estimate-null value standard error • If t>2, then p-value < 0.05 • P = D₁ = E₁x (1- b) Formulas and facts: ⚫ Accrued interest = (#days since last coupon/number of days per coupon period)coupon • CAPM: E(ra) = rƒ + Ba (E(rm) - rƒ) or E(rarf) = ẞa (E(rm) — rƒ) ⚫ CAPM test regression: Tit-Tft = ai + ẞi(rmt − rft) + Eit Fama French 3-factor model: E(rar): E(SMB)+ha E(HMLt) = - BaE(Tm rf) + Sa Fama French test regression: Tat - rft = αa + Ba * (Tmt - Tft) + Sa * (SMB)+ha (HMLt) + Eit Carhart 4-factor model: E(rar) = Ba* E(™m - rƒ) + Sa * E(SMBt) + ha * E(HMLt) + maE(MOM) Carhart 4-factor test regression: Tat-Tft = a + Ba* (Tmt − ˜ft) + Sa * (SMB₁) + ha* (HMLt) + ma* (MOM₁) + Eit • mktr ft = rmt-Tft is the excess return on the US stock market. ⚫ SMB₁ = "small,t - "big,t is the return on the portfolio of small-cap US stocks in excess of the return on a portfolio of large-cap US stocks. • HML₁ = Thigh,t-Tlow,t is the return on the portfolio of high book-to- market (value) stocks in excess of the return on the portfolio of low book-to-market (growth) stocks. ⚫ MOM₁ = "Winners,t - "Losers,t is the return on stocks with high returns over the prior 12 months in excess of the return on stocks with low returns over the prior 12 months. ⚫ return = Ending Value-Starting Value Starting Value Price+Div-Price Priceo • Ba= = corr(rm.ra)σ(ra) 0(1b) = Slope of the best fit line through plot of ra vs. Tm

SWFT Corp Partner Estates Trusts

42nd Edition

ISBN:9780357161548

Author:Raabe

Publisher:Raabe

Chapter1: Understanding And Working With The Federal Tax Law

Section: Chapter Questions

Problem 27DQ

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Related questions

Question

1. A 5-year Treasury bond with a coupon rate of 5% per year (semiannual coupons) currently has a quoted price of $100 in the Wall Street Journal. Assuming the last coupon was 60 days ago and there are 364 days per year, which of the following is closest to what you would pay to buy this bond?

Group of answer choices

$101.000
$100.750
$101.500
$101.250
$100.500

2. Which TWO of the following are correct reasons that could explain why most CFOs still rely on the CAPM to estimate the cost of capital in spite of the fact that it fails to explain the returns on all stocks?

Group of answer choices

None of the above
More investors still only care about the risks captured by the CAPM, and therefore the cost-of-capital given by the CAPM, than any other model
The CAPM estimates always underestimate the cost-of-capital, so CFOs can use the CAPM to deceive shareholders into believing their companies are worth more than is actually true
There is not necessarily a reliably better/generally accepted alter- native model, and they have to use something
CFOs lack the technical ability to use anything more sophisticated than the CAPM

•
(1+11/2)2-0.5 (1+12/2)2-2
P
CF₁
CF₂
-
+
+ +
CFT
CF1
CF2
=
(1+ytm/2)1-2 (1+ytm/2)2-2
+ +
(1+r7/2)1-2
CFT
(1+ytm/2)1-2
+
P= (w1,
1,, Wn) ⇒ Duration: = w₁ D₁+w2 ⋅ D₂+ ... + Wn · Dn
AP/P-Durp Ay
.
•AP/P-Durp Ay + ½ Convexity (Ay)²
wo
.
• ΨΑ
=
where w
=
1+wo(1-BA)
αA/02(EA)
E(rm-rƒ)/0²(rm)*
WM = 1 - WA.
• t-statistic =
estimate-null value
standard error
• If t>2, then p-value < 0.05
• P
=
D₁ = E₁x (1- b)

Formulas and facts:
⚫ Accrued interest = (#days since last coupon/number of days per coupon
period)*coupon
• CAPM: E(ra) = rƒ + Ba (E(rm) - rƒ) or E(rarf) = ẞa (E(rm) — rƒ)
⚫ CAPM test regression: Tit-Tft = ai + ẞi(rmt − rft) + Eit
Fama French 3-factor model: E(rar):
E(SMB)+ha E(HMLt)
=
-
BaE(Tm rf) + Sa *
Fama French test regression: Tat - rft = αa + Ba * (Tmt - Tft) + Sa *
(SMB)+ha (HMLt) + Eit
Carhart 4-factor model:
E(rar) = Ba* E(™m - rƒ) + Sa * E(SMBt) + ha * E(HMLt) +
maE(MOM)
Carhart 4-factor test regression:
Tat-Tft = a + Ba* (Tmt − ˜ft) + Sa * (SMB₁) + ha* (HMLt) + ma*
(MOM₁) + Eit
• mktr ft = rmt-Tft is the excess return on the US stock market.
⚫ SMB₁ = "small,t - "big,t is the return on the portfolio of small-cap US
stocks in excess of the return on a portfolio of large-cap US stocks.
• HML₁ = Thigh,t-Tlow,t is the return on the portfolio of high book-to-
market (value) stocks in excess of the return on the portfolio of low
book-to-market (growth) stocks.
⚫ MOM₁ = "Winners,t - "Losers,t is the return on stocks with high returns
over the prior 12 months in excess of the return on stocks with low
returns over the prior 12 months.
⚫ return = Ending Value-Starting Value
Starting Value
Price+Div-Price
Priceo
• Ba= =
corr(rm.ra)σ(ra)
0(1b)
=
Slope of the best fit line through plot of ra vs. Tm

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