(a) To Discuss: Recommend purchase of either Aaa or Aa bonds for a one year investment horizon given a goal of maximizing expected returns. The following table represents data relating to corporate/government spread relationship (in basis points,bp) at the given date: CURRENT AND EXPECTED SPREADS AND DURATIONS OF HIGH-GRADE CORPORATE BONDS(ONE YEAR HORIZON) Bond Rating Initial spread over Governments Expected Horizon spread Initial Duration Expected Duration One year from Now Aaa 31bp 31bp 4 years 3.1 years Aa 40bp 50bp 4 years 3.1 years Introduction: A bond is a security that creates an obligation on the issuer to make a specified payment to the holder for a specified time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price, in simple terms it is the average rate of return a holder can expect from a bond. A corporate bond is a bond issued to raise finance by a corporation for reasons such as for ongoing operations, Mergers &Acquisitions or to expand business. A government bond is a bond issued by a national government in which generally periodic interest payments are made and the face value on the maturity date is repaid. It is also called sovereign bond.

Question

Jeff Krause purchased 1,000 shares of a speculative stock in January for $1.89 per share. Six months later, he sold them for $9.95 per share. He uses an online broker that charges him $10.00 per trade. What was Jeff's annualized HPR on this investment? Jeff's annualized HPR on this investment is %. (Round to the nearest whole percent.)

Answer 1

Question

Chapter 11, Problem 4CP

Summary Introduction

(a)

To Discuss:

Recommend purchase of either Aaa or Aa bonds for a one year investment horizon given a goal of maximizing expected returns.

The following table represents data relating to corporate/government spread relationship (in basis points,bp) at the given date:

CURRENT AND EXPECTED SPREADS AND DURATIONS OF HIGH-GRADE CORPORATE BONDS(ONE YEAR HORIZON)

Bond Rating Initial spread over Governments Expected Horizon spread Initial Duration Expected Duration One year from Now

Aaa 31bp 31bp 4 years 3.1 years

Aa 40bp 50bp 4 years 3.1 years

Introduction:

A bond is a security that creates an obligation on the issuer to make a specified payment to the holder for a specified time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price, in simple terms it is the average rate of return a holder can expect from a bond. A corporate bond is a bond issued to raise finance by a corporation for reasons such as for ongoing operations, Mergers &Acquisitions or to expand business. A government bond is a bond issued by a national government in which generally periodic interest payments are made and the face value on the maturity date is repaid. It is also called sovereign bond.

Summary Introduction

(b)

To Discuss:

(b) Ames chooses not to rely solely on initial spread relationships. His analytical framework considers a full range of other key variables likely to impact realized incremental returns, including call provisions and potential changes in interest rates. Describe other variables that Ames should include in his analysis and explain how each of these could cause realized incremental returns to differ from those indicated by initial spread relationships.

The following table represents data relating to corporate/government spread relationship (in basis points, bp) at a given date:

CURRENT AND EXPECTED SPREADS AND DURATIONS OF HIGH-GRADE CORPORATE BONDS (ONE YEAR HORIZON)

Bond Rating Initial spread over Governments Expected Horizon spread Initial Duration Expected Duration One year from Now

Aaa 31bp 31bp 4 years 3.1 years

Aa 40bp 50bp 4 years 3.1 years

Introduction:

A bond is a security that creates an obligation on the issuer to make a specified payment to the holder for a specified time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price, in simple terms it is the average rate of return a holder can expect from a bond. A corporate bond is a bond issued to raise finance by a corporation for reasons such as for ongoing operations, Mergers &Acquisitions or to expand business. A government bond is a bond issued by a national government in which generally periodic interest payments are made and the face value on the maturity date is repaid. It is also called sovereign bond. Basis points, otherwise known as bps are a unit of measure used to describe the percentage change in the value or rate of a financial instrument.

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Jeff Krause purchased 1,000 shares of a speculative stock in January for $1.89 per share. Six months later, he sold them for $9.95 per share. He uses an online broker that charges him $10.00 per trade. What was Jeff's annualized HPR on this investment? Jeff's annualized HPR on this investment is %. (Round to the nearest whole percent.)

Congratulations! Your portfolio returned 16.7% last year, 2.5% better than the market return of 14.2%. Your portfolio had a standard deviation of earnings equal to 18%, and the risk-free rate is equal to 4.4%. Calculate Sharpe's measure for your portfolio. If the market's Sharpe's measure is 0.29, did you do better or worse than the market from a risk/return perspective? The Sharpe's measure of your portfolio is (Round to two decimal places.)

On January 1, 2020, Simon Love's portfolio of 15 common stocks had a market value of $258,000. At the end of May 2020, Simon sold one of the stocks, which had a beginning-of-year value of $26,900, for $31,400. He did not reinvest those or any other funds in the portfolio during the year. He received total dividends from stocks in his portfolio of $11,900 during the year. On December 31, 2020, Simon's portfolio had a market value of $246,000. Find the HPR on Simon's portfolio during the year ended December 31, 2020. (Measure the amount of withdrawn funds at their beginning-of-year value.) Simon's portfolio HPR during the year ended December 31, 2020, is %. (Round to two decimal places.)

Answer 2

Question

Chapter 11, Problem 4CP

Summary Introduction

(a)

To Discuss:

Recommend purchase of either Aaa or Aa bonds for a one year investment horizon given a goal of maximizing expected returns.

The following table represents data relating to corporate/government spread relationship (in basis points,bp) at the given date:

CURRENT AND EXPECTED SPREADS AND DURATIONS OF HIGH-GRADE CORPORATE BONDS(ONE YEAR HORIZON)

Bond Rating Initial spread over Governments Expected Horizon spread Initial Duration Expected Duration One year from Now

Aaa 31bp 31bp 4 years 3.1 years

Aa 40bp 50bp 4 years 3.1 years

Introduction:

A bond is a security that creates an obligation on the issuer to make a specified payment to the holder for a specified time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price, in simple terms it is the average rate of return a holder can expect from a bond. A corporate bond is a bond issued to raise finance by a corporation for reasons such as for ongoing operations, Mergers &Acquisitions or to expand business. A government bond is a bond issued by a national government in which generally periodic interest payments are made and the face value on the maturity date is repaid. It is also called sovereign bond.

Summary Introduction

(b)

To Discuss:

(b) Ames chooses not to rely solely on initial spread relationships. His analytical framework considers a full range of other key variables likely to impact realized incremental returns, including call provisions and potential changes in interest rates. Describe other variables that Ames should include in his analysis and explain how each of these could cause realized incremental returns to differ from those indicated by initial spread relationships.

The following table represents data relating to corporate/government spread relationship (in basis points, bp) at a given date:

CURRENT AND EXPECTED SPREADS AND DURATIONS OF HIGH-GRADE CORPORATE BONDS (ONE YEAR HORIZON)

Bond Rating Initial spread over Governments Expected Horizon spread Initial Duration Expected Duration One year from Now

Aaa 31bp 31bp 4 years 3.1 years

Aa 40bp 50bp 4 years 3.1 years

Introduction:

A bond is a security that creates an obligation on the issuer to make a specified payment to the holder for a specified time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price, in simple terms it is the average rate of return a holder can expect from a bond. A corporate bond is a bond issued to raise finance by a corporation for reasons such as for ongoing operations, Mergers &Acquisitions or to expand business. A government bond is a bond issued by a national government in which generally periodic interest payments are made and the face value on the maturity date is repaid. It is also called sovereign bond. Basis points, otherwise known as bps are a unit of measure used to describe the percentage change in the value or rate of a financial instrument.

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Answer 3

Question

Chapter 11, Problem 4CP

Summary Introduction

(a)

To Discuss:

Recommend purchase of either Aaa or Aa bonds for a one year investment horizon given a goal of maximizing expected returns.

The following table represents data relating to corporate/government spread relationship (in basis points,bp) at the given date:

CURRENT AND EXPECTED SPREADS AND DURATIONS OF HIGH-GRADE CORPORATE BONDS(ONE YEAR HORIZON)

Bond Rating Initial spread over Governments Expected Horizon spread Initial Duration Expected Duration One year from Now

Aaa 31bp 31bp 4 years 3.1 years

Aa 40bp 50bp 4 years 3.1 years

Introduction:

A bond is a security that creates an obligation on the issuer to make a specified payment to the holder for a specified time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price, in simple terms it is the average rate of return a holder can expect from a bond. A corporate bond is a bond issued to raise finance by a corporation for reasons such as for ongoing operations, Mergers &Acquisitions or to expand business. A government bond is a bond issued by a national government in which generally periodic interest payments are made and the face value on the maturity date is repaid. It is also called sovereign bond.

Summary Introduction

(b)

To Discuss:

(b) Ames chooses not to rely solely on initial spread relationships. His analytical framework considers a full range of other key variables likely to impact realized incremental returns, including call provisions and potential changes in interest rates. Describe other variables that Ames should include in his analysis and explain how each of these could cause realized incremental returns to differ from those indicated by initial spread relationships.

The following table represents data relating to corporate/government spread relationship (in basis points, bp) at a given date:

CURRENT AND EXPECTED SPREADS AND DURATIONS OF HIGH-GRADE CORPORATE BONDS (ONE YEAR HORIZON)

Bond Rating Initial spread over Governments Expected Horizon spread Initial Duration Expected Duration One year from Now

Aaa 31bp 31bp 4 years 3.1 years

Aa 40bp 50bp 4 years 3.1 years

Introduction:

A bond is a security that creates an obligation on the issuer to make a specified payment to the holder for a specified time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price, in simple terms it is the average rate of return a holder can expect from a bond. A corporate bond is a bond issued to raise finance by a corporation for reasons such as for ongoing operations, Mergers &Acquisitions or to expand business. A government bond is a bond issued by a national government in which generally periodic interest payments are made and the face value on the maturity date is repaid. It is also called sovereign bond. Basis points, otherwise known as bps are a unit of measure used to describe the percentage change in the value or rate of a financial instrument.

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Answer 4

Question

Chapter 11, Problem 4CP

Summary Introduction

(a)

To Discuss:

Recommend purchase of either Aaa or Aa bonds for a one year investment horizon given a goal of maximizing expected returns.

The following table represents data relating to corporate/government spread relationship (in basis points,bp) at the given date:

CURRENT AND EXPECTED SPREADS AND DURATIONS OF HIGH-GRADE CORPORATE BONDS(ONE YEAR HORIZON)

Bond Rating Initial spread over Governments Expected Horizon spread Initial Duration Expected Duration One year from Now

Aaa 31bp 31bp 4 years 3.1 years

Aa 40bp 50bp 4 years 3.1 years

Introduction:

A bond is a security that creates an obligation on the issuer to make a specified payment to the holder for a specified time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price, in simple terms it is the average rate of return a holder can expect from a bond. A corporate bond is a bond issued to raise finance by a corporation for reasons such as for ongoing operations, Mergers &Acquisitions or to expand business. A government bond is a bond issued by a national government in which generally periodic interest payments are made and the face value on the maturity date is repaid. It is also called sovereign bond.

Summary Introduction

(b)

To Discuss:

(b) Ames chooses not to rely solely on initial spread relationships. His analytical framework considers a full range of other key variables likely to impact realized incremental returns, including call provisions and potential changes in interest rates. Describe other variables that Ames should include in his analysis and explain how each of these could cause realized incremental returns to differ from those indicated by initial spread relationships.

The following table represents data relating to corporate/government spread relationship (in basis points, bp) at a given date:

CURRENT AND EXPECTED SPREADS AND DURATIONS OF HIGH-GRADE CORPORATE BONDS (ONE YEAR HORIZON)

Bond Rating Initial spread over Governments Expected Horizon spread Initial Duration Expected Duration One year from Now

Aaa 31bp 31bp 4 years 3.1 years

Aa 40bp 50bp 4 years 3.1 years

Introduction:

A bond is a security that creates an obligation on the issuer to make a specified payment to the holder for a specified time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price, in simple terms it is the average rate of return a holder can expect from a bond. A corporate bond is a bond issued to raise finance by a corporation for reasons such as for ongoing operations, Mergers &Acquisitions or to expand business. A government bond is a bond issued by a national government in which generally periodic interest payments are made and the face value on the maturity date is repaid. It is also called sovereign bond. Basis points, otherwise known as bps are a unit of measure used to describe the percentage change in the value or rate of a financial instrument.

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Answer 5

Chapter 11, Problem 4CP

Summary Introduction

(a)

To Discuss:

Recommend purchase of either Aaa or Aa bonds for a one year investment horizon given a goal of maximizing expected returns.

The following table represents data relating to corporate/government spread relationship (in basis points,bp) at the given date:

CURRENT AND EXPECTED SPREADS AND DURATIONS OF HIGH-GRADE CORPORATE BONDS(ONE YEAR HORIZON)

Bond Rating Initial spread over Governments Expected Horizon spread Initial Duration Expected Duration One year from Now

Aaa 31bp 31bp 4 years 3.1 years

Aa 40bp 50bp 4 years 3.1 years

Introduction:

A bond is a security that creates an obligation on the issuer to make a specified payment to the holder for a specified time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price, in simple terms it is the average rate of return a holder can expect from a bond. A corporate bond is a bond issued to raise finance by a corporation for reasons such as for ongoing operations, Mergers &Acquisitions or to expand business. A government bond is a bond issued by a national government in which generally periodic interest payments are made and the face value on the maturity date is repaid. It is also called sovereign bond.

Summary Introduction

(b)

To Discuss:

(b) Ames chooses not to rely solely on initial spread relationships. His analytical framework considers a full range of other key variables likely to impact realized incremental returns, including call provisions and potential changes in interest rates. Describe other variables that Ames should include in his analysis and explain how each of these could cause realized incremental returns to differ from those indicated by initial spread relationships.

The following table represents data relating to corporate/government spread relationship (in basis points, bp) at a given date:

CURRENT AND EXPECTED SPREADS AND DURATIONS OF HIGH-GRADE CORPORATE BONDS (ONE YEAR HORIZON)

Bond Rating Initial spread over Governments Expected Horizon spread Initial Duration Expected Duration One year from Now

Aaa 31bp 31bp 4 years 3.1 years

Aa 40bp 50bp 4 years 3.1 years

Introduction:

A bond is a security that creates an obligation on the issuer to make a specified payment to the holder for a specified time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price, in simple terms it is the average rate of return a holder can expect from a bond. A corporate bond is a bond issued to raise finance by a corporation for reasons such as for ongoing operations, Mergers &Acquisitions or to expand business. A government bond is a bond issued by a national government in which generally periodic interest payments are made and the face value on the maturity date is repaid. It is also called sovereign bond. Basis points, otherwise known as bps are a unit of measure used to describe the percentage change in the value or rate of a financial instrument.

Answer 6

Chapter 11, Problem 4CP

Summary Introduction

(a)

To Discuss:

Recommend purchase of either Aaa or Aa bonds for a one year investment horizon given a goal of maximizing expected returns.

The following table represents data relating to corporate/government spread relationship (in basis points,bp) at the given date:

CURRENT AND EXPECTED SPREADS AND DURATIONS OF HIGH-GRADE CORPORATE BONDS(ONE YEAR HORIZON)

Bond Rating Initial spread over Governments Expected Horizon spread Initial Duration Expected Duration One year from Now

Aaa 31bp 31bp 4 years 3.1 years

Aa 40bp 50bp 4 years 3.1 years

Introduction:

A bond is a security that creates an obligation on the issuer to make a specified payment to the holder for a specified time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price, in simple terms it is the average rate of return a holder can expect from a bond. A corporate bond is a bond issued to raise finance by a corporation for reasons such as for ongoing operations, Mergers &Acquisitions or to expand business. A government bond is a bond issued by a national government in which generally periodic interest payments are made and the face value on the maturity date is repaid. It is also called sovereign bond.

Answer 7

Chapter 11, Problem 4CP

Summary Introduction

(a)

To Discuss:

Recommend purchase of either Aaa or Aa bonds for a one year investment horizon given a goal of maximizing expected returns.

The following table represents data relating to corporate/government spread relationship (in basis points,bp) at the given date:

CURRENT AND EXPECTED SPREADS AND DURATIONS OF HIGH-GRADE CORPORATE BONDS(ONE YEAR HORIZON)

Bond Rating Initial spread over Governments Expected Horizon spread Initial Duration Expected Duration One year from Now

Aaa 31bp 31bp 4 years 3.1 years

Aa 40bp 50bp 4 years 3.1 years

Introduction:

A bond is a security that creates an obligation on the issuer to make a specified payment to the holder for a specified time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price, in simple terms it is the average rate of return a holder can expect from a bond. A corporate bond is a bond issued to raise finance by a corporation for reasons such as for ongoing operations, Mergers &Acquisitions or to expand business. A government bond is a bond issued by a national government in which generally periodic interest payments are made and the face value on the maturity date is repaid. It is also called sovereign bond.

Answer 8

Summary Introduction

(b)

To Discuss:

(b) Ames chooses not to rely solely on initial spread relationships. His analytical framework considers a full range of other key variables likely to impact realized incremental returns, including call provisions and potential changes in interest rates. Describe other variables that Ames should include in his analysis and explain how each of these could cause realized incremental returns to differ from those indicated by initial spread relationships.

The following table represents data relating to corporate/government spread relationship (in basis points, bp) at a given date:

CURRENT AND EXPECTED SPREADS AND DURATIONS OF HIGH-GRADE CORPORATE BONDS (ONE YEAR HORIZON)

Bond Rating Initial spread over Governments Expected Horizon spread Initial Duration Expected Duration One year from Now

Aaa 31bp 31bp 4 years 3.1 years

Aa 40bp 50bp 4 years 3.1 years

Introduction:

A bond is a security that creates an obligation on the issuer to make a specified payment to the holder for a specified time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price, in simple terms it is the average rate of return a holder can expect from a bond. A corporate bond is a bond issued to raise finance by a corporation for reasons such as for ongoing operations, Mergers &Acquisitions or to expand business. A government bond is a bond issued by a national government in which generally periodic interest payments are made and the face value on the maturity date is repaid. It is also called sovereign bond. Basis points, otherwise known as bps are a unit of measure used to describe the percentage change in the value or rate of a financial instrument.

Answer 9

Summary Introduction

(b)

To Discuss:

(b) Ames chooses not to rely solely on initial spread relationships. His analytical framework considers a full range of other key variables likely to impact realized incremental returns, including call provisions and potential changes in interest rates. Describe other variables that Ames should include in his analysis and explain how each of these could cause realized incremental returns to differ from those indicated by initial spread relationships.

The following table represents data relating to corporate/government spread relationship (in basis points, bp) at a given date:

CURRENT AND EXPECTED SPREADS AND DURATIONS OF HIGH-GRADE CORPORATE BONDS (ONE YEAR HORIZON)

Bond Rating Initial spread over Governments Expected Horizon spread Initial Duration Expected Duration One year from Now

Aaa 31bp 31bp 4 years 3.1 years

Aa 40bp 50bp 4 years 3.1 years

Introduction:

A bond is a security that creates an obligation on the issuer to make a specified payment to the holder for a specified time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price, in simple terms it is the average rate of return a holder can expect from a bond. A corporate bond is a bond issued to raise finance by a corporation for reasons such as for ongoing operations, Mergers &Acquisitions or to expand business. A government bond is a bond issued by a national government in which generally periodic interest payments are made and the face value on the maturity date is repaid. It is also called sovereign bond. Basis points, otherwise known as bps are a unit of measure used to describe the percentage change in the value or rate of a financial instrument.

Answer 10

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Ch. 11.2 - Prob. 1EQ Ch. 11.2 - Prob. 2EQ Ch. 11.2 - Prob. 3EQ Ch. 11.3 - Prob. 1EQ Ch. 11.3 - Prob. 2EQ Ch. 11.3 - Prob. 3EQ Ch. 11 - Prob. 1PS Ch. 11 - Prob. 2PS Ch. 11 - Prob. 3PS Ch. 11 - Prob. 4PS

Bond Rating	Initial spread over Governments	Expected Horizon spread	Initial Duration	Expected Duration One year from Now
Aaa	31bp	31bp	4 years	3.1 years
Aa	40bp	50bp	4 years	3.1 years

Chapter 11 Solutions