A final project in economics

User Generated

kvnatzh

Economics

Description

1. Go to www.giddy.org/db/corpspreads.htm. The spreads are listed in the form of basis points (100 basis points 14 1 percent) above the Treasury security with the same maturity. a. First, determine the difference between the AAA and CCC spreads. This indicates how much more of a yield is required on CCC-rated bonds versus AAA-rated bonds. Next, determine the difference between AAA and BBB spreads. Then determine the difference between BBB and CCC spreads. Is the difference larger between the AAA and BBB or the BBB and CCC spreads? What does this tell you about the perceived risk of the bonds in these rating categories? b. Compare the AAA spread for a short-term maturity (such as two years) versus a longterm maturity (such as 10 years). Is the spread larger for the short-term or the long-term maturity? Offer an explanation for this. c. Next, compare the CCC spread for a short-term maturity (such as two years) versus a long-term maturity (such as 10 years). Is the spread larger for the short-term or the longterm maturity? Offer an explanation for this. Notice that the difference in spreads for a given rating level among maturities varies with the rating level that you assess. Offer an explanation for this.

2. Go to finance.yahoo.com/stock-center, choose 5 different stocks and using their symbols click on “Search Finance.” a. What is the average daily trading volume (Avg Vol)? What is the market capitalization of the firm? What is its price-earnings ratio (P/E)? What is the amount of dividends paid, if any, and what is the dividend yield (Div & Yield)? What is the firm’s beta? b. Go to the bottom of the stock price chart and retrieve the end-of-month stock price of Intel over the last 12 months. Record this information in an Excel spreadsheet and estimate the standard deviation of the stock’s price movements. (See Appendix B for guidance on how to estimate the standard deviation of a stock’s price movements.) Repeat the process for all 5 stocks. Which stock does your analysis show to be riskier? Assume that the expected return on these stocks is 0 percent for the next month. Use the value-at-risk method to determine the maximum expected loss of these stocks for the next month, based on a 95 percent confidence level.

Also, here is the requirements:

August 3rd is the deadline for this project.

You need to submit all of your work compiled in 1 Pdf file, and 1 Excel file. Please don't submit multiple excel files.

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Explanation & Answer

Attached.

Surname 1

Name
Supervisor
Course
Date

Answer
AAA-rated bonds =40 basis points spread
BBB-rated bonds = 120 basis points spread
CCC-rated bonds =660 basis points spread
Difference between AAA and CCC spreads;
=40-600 =560 basis points spread
Difference between AAA and BBB spreads;
=40-120 =80 basis points spread
Difference between BBB and CCC spreads;

Surname 2

=120-600 = 480 basis points spread

Notably, for the calculation above, the spread between BBB-rated and CCC-rated bonds
is greater compared to the spread between AAA-rated and BBB-rated bonds, with a difference of
480 basis points against 80 basis points.

Observably, the spread is large between AAA-rated and CCC-rated bonds as well as
BBB-rated and CCC-rated bonds. This implies the perceived risk in CCC-rated bonds is greater
compared to BBB-rated and AAA-rated bonds.

Part 2

Answer
a. Stock information

Surname 3

Facebook
(FB)

The average daily trading volume
(Avg Vol)
The market capitalization of the
firm
Price-earnings ratio (P/E)
Dividend & dividend yield

Intel
General
corporation electric
(INTC)
company
(GE)

Twitter
(TWTR)

Ford Motor
company
(F)

22,404,475

25,052,959

498.276B

221.789B

118.459B

23.9B

40.017B

28.57
20.86
N/A 1.20
(2.31%)
0.89
0.9

N/A
0.48
(3.57%)
0.71

1,593.50
N/A

5.2
0.60 (5.36%)

0.78

0.87

Fir...


Anonymous
Great content here. Definitely a returning customer.

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