Finance Midterm

FIN 473: Final Exam

Name:

Student Number:

Instructions:

1. Print your name and student number in the spaces provided above.

2. The examination consists of 11 pages.

3. Answer all questions. Answer the questions in the space provided. Grades for each question are indicated.

4. Time allowed is 80 minutes.

5. Permitted aids: calculator, 2 pages of formulae (handwritten).

Question | Full Mark | Score |

Section 1 | | |

Section 2 | | |

Total | | |

| | |

Cheat Sheet

(1). The present value of annuities

Arⁿ = (1/((1+r)¹))+(1/((1+r)²))+...+(1/((1+r)ⁿ)) = (1/r)(1-(1/((1+r)ⁿ)))

where r is the discount rate for one period, and n is the number of periods.

(2) The future value of annuities:

Frⁿ = (1/r)((1+r)ⁿ-1) = Arⁿ×(1+r)ⁿ

where r is the discount rate for one period, and n is the number of periods.

(3) Present value of a bond:

P = (C/((1+r)¹))+(C/((1+r)²))+...+(C/((1+r)ⁿ))+(M/((1+r)ⁿ)) = C×Arⁿ+(M/((1+r)ⁿ))

where C is the half year coupon value, M is the face value of debt, and r is the discount rate for half a year.

(4) T-bills are quoted as follows:

bank discount yield = ((100-price)/(100))×((360)/n),

or

price=100×(1-bank discount yield×(n/(360))),

where price is the actual price, and n is the number of days from today to maturity.

(5) Duration: MD=(($ duration)/P)

Macauly Duration=MD×(1+(Y/2))

where MD is modified duration, P is price, and Y is the yield to maturity.

(6) Convexity:

convexity=(($ convexity)/P)

where $ convexity is dollar convesity, and P is price..

(7) Duration and convexity:

dP ≈ -$ duration×dY+(1/2)×$ convexity×(dY)² ≈ -MD×dY×P+(1/2)×convexity×P×(dY)²

((dP)/P)≈-MD×dY+(1/2)×convexity×(dY)²

where dP represents the change in price, dY is the change in yield, P is the price of the bond, and MD is the modified duration.

(8) Effective annual rate = (1+(Y/m))m-1, where Y is the annualized m-compounding rate.

(9) The present value of $1, if it is...