The Term Structure of Interest Rates – Accounting & Finance Assignment Help

Assignment Task

Task 

The Term Structure of Interest Rates

1.(a) Flow does the expectations hypothesis differ from the segmentation hypothesis as a theory of the term structure of interest rates?

(b) Your portfolio is valued at $300 and tracks an equity index currently standing at 100. You wish to use put options on the index to eliminate the possibility that the portfolio value goes below $400 in 12 menthe time. while at the same time retain as much as possible of the *side risk. The risk-free interest rate is 4% over the 12 months. Foe options on the index with an exercise price of S80. a 12.month call option is worth $27.07 per $100 worth of the underlying. and a 12-month put option is worth $3.99 per $100 worth of the underlying.

• What are the details of your put-protection strategy?
• What is the value of your oven!l portfolio if the equity index rises by 10%?

(c) The expected return on a portfolio is 11%. with variance 22%. The beta of the portfolio is 0.8. The expected return on the market index is 10%. with variance 12%. and the risk-free rate is 3%.
What is the hi-squared measure. the Sharpe ratio, the Treynor ratio. and the Jensen’s alpha for the portfolio? Is the portfolio attractive?

2.(a) Contrast the actual performance of fund managers with that expected from the Efficient Markets Hypothesis.

(b) You short 800 shares. The initial price of the shares is 100. and the shares pay a dividend at the end of the first year of 15per share. The price of the shares (ex-dividend) at the end of the first year is 110. and you buy back 200 shares at this point. The dividend at the end of the second year 20 pa share. The price of the shares (ex4ividend) at the end of the second year is 90. and you clear your position by buying back the remaining shares as the end of the second year. The initial and maintenance margin is 70%.
Assuming you maintain the minimum margin requirements at all times. what is the 2•nat return on your short sale transaction?

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