Answer to Exercise 3

7/30/2019 Answer to Exercise 3

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The Capital Market in Israel

Exercise #3 Practice Exam

First section- Total of 49 points, 7 points per question:

1) An Investor bought a MaKam for 3 months, paying a price reflectingan effective yield of 4%. After 1 month, the investor sold the MaKamfor a price reflecting an effective yield of 10%. What was the actualyield the investor received for his investment?

2) A Zero Coupon Bond (Paying 100 NIS at expiration) is issued for 10years, with a discount rate of 10%. There are 10 months from nowuntil the expiration date of that Bond. What is the discount raterequired today? If the price of the Bond today is 95.26 NIS.

P 100

(1 K )n /365:

P 1100

(1 0.1) 2/1298.424

P 2100

(1 0.04) 3/12 99.024

yeild P 1 P 2

P 20.606%

Pv 100

(1 X )1012

95.26

100

95.26

1210

(1 X ) 1.06


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3) A Coupon Bond is issued for 5 years, paying a coupon of 6% a year

every 6 months (3% every half a year), and the full fund (100 NIS) atthe end of the period. What will be the bond price 2 years and 7months after issuance if the discount rate at that time is 8%?

4) A Shahar is traded today (23/02/2009) for 104 NIS. The yearlyCoupon is 3.23% and the Maturity date is 28/02/2010. What is theyield to maturity? Is it traded at discount or premium?

5) A corporate Bond for 4 years is paying a yearly coupon of 5% aswell as of the fund (50) is redeemed on year 3 and 4 on the same

date as the coupon. What is the price an investor will be willing topay for it? If he is looking for a 7% YTM.

PV cF

(1 d ) t t 1

nF

(1 d ) n

3

(1.08 0.5 )56

3

(1.08 0.5 )116

3

(1.08 0.5 )176

3

(1.08 0.5 )236

103

(1.08 0.5 )296

96.498

1043.23

(1 d )5

365t 1

n103.23

(1 d )370365

d 2.4%

Pari 100 3.23*360365

103.266

PV

F

N

c ( N 1 n ) N

1 d n5

1.07 1n 1

N 5

1.07 2

1002

5 * 22

1.07 3

1002

5 *12

1.07 4

51.07

51.07 2

551.07 3

52.51.07 4

93.99


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6) Calculate the value of a Put90 according to the Multi-period BOPM,if we know that the risk free rate is 5% and the Security acts asfollows:

7) A Convertible Bond that was issued by one of the TA-25companies is traded at 109.3. If we know that the Security is tradedfor 22,360 points and that the conversion ratio is 11,250, whatwould be the premium for immediate conversion?

S=100

S=120

S=80

=

S=96

S=64

S d u

PuPd

Sd Su

PuPd h

*)(_)10***

)*(*)1(**_)11*** PS hr Pd Sd hPuSuh

RPud ud R

Pd d u

RuP

1*_)12***

H PV

bond * CR PV

stock

1109.3*112.5

223601 0.45 45%


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Second section Total of 36 points, 4 points per question:

8) The Makam is o ffered and sold by the BOI in three ways, what arethey?

Lecture #1 Slide 10:o MaKam is offered and sold by the Bank of Israel in 3 ways:

Discriminatory auction for immediate delivery.Future Treasury bills.

Swap auction

9) What is the roll of the trustee during the life time of the Bond?

Lecture #2 Slide 5:

o The TrusteeEvery Bond issued to the Public must have a Trustee.Most of the time it will be a Commercial Bank.

Will represent all of the Bond holdersWill act in the name of all Bond holders.

10) What are the types of Mortgage-backed securities? And what is the

deference between them?

Lecture #2 Slide 9:

o We need to distinguish between:Closed-end MortgageOpen-end MortgageFirst Mortgage BondSecond Mortgage Bond


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11) Which of the bellow is correct? Please explain the main reason for this change:

a. In 1985, 4% of the public portfolio was in Unlinked Bonds, andin 2006 29% was in Unlinked Bonds.

b. In 1985 29% of the public portfolio was in Unlinked Bonds,and in 2006 4% was in Unlinked Bonds.

Lecture # Slides 2-3 and 10 :

o Answer A is the correct one.This was due to the high Inflation of the early 80's

12) What is a Puttable Bonds?

Lecture #2 Slide 15:

o Puttable Bond is an Option to return the Bond for an agreedprice, usually for the FV.

Lowering the risk factor.Can be exercise at any point of time.

Yield will be lower then same bond without the Putoption.

13) What information is available for us from the name of the MaKam1029?

Lecture #1 Slide 13:

o Expiration date - First week of the second month of 2009.

14) What are the General Steps to Fundamental Evaluation?

Lecture #7 Slide 3:

o Economic Forecast.o Group Selection.o Narrow Within the Groupo Company Analysis:

Business PlanManagementFinancial Analysis

o Putting it All Together


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15) What underling assets are derivatives available on in the TASE?

Lecture #9 Slides 7-9:

o The TA-25 indexo Shekel-Dollar exchange-rateo Shekel-Euro exchange rateo Long Term or Mid-Term Unlinked fixed-rate Israeli

Government Bonds ("Shahar")o TA-Banks Index

16) Draw a naked Short Put including profit line and payoff line.

Lecture #9 Slide 6:

Third section 15 points.

Explain over the chart, as many characteristics related to technical analysis as you can.Such as:

(Side way with an, What is the Trend now?)Candlestick ChartWhat kind of chart is it? (?(Probably up as the, Where is it expected to go in the near futureuptrend potential)

Where are theare showing us that Volume is higher during positive days),indicatorsWhat kind of Scaling is),(Upward from Jan to May, side way since May)?LinesTrend

(Red for resistancelines?ResistanceandSupport, Where are the)arithmetic scale?(used?(In the support line during MarchValidation, Where can we see afor support)and green

between MayRectangle pattern?(We can see aPatterns, Can we see anyApril and May)

(they are supporting the uptrend, as the?Indicators, What can we learn from theand Jun) and so on.me is higher during positive days)Volu


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Answer to Exercise 3