Please help i have no idea how to solve this. Q from Schweser Exam II The following table summarizes the results of a poll taken of CEOs and analysts about the economic impact of a pending piece of legislation: Group Predict Positive Impact Predict Negative Impact CEOs 40 30 Analysts 70 60 What is the probability that a randomly selected individual from this group will be eother ana nalyst or someone who thinks this legislation will have positive impact on the economy? A. 0.75 B. 0.80 C. 0.85 D. 0.90 Another Q on Total Return An investor purchased $10 000, 5yr corporate note one year ago for $10 440. The note pays an annual coupon of $600. Over the past yr, the note’s annual yield-to-maturity has dropped by 1%. What total return did the investor earn over the year? A. 8.0% B. 8.5% C. 9.0% D. 9.5% Please explain how to arive at the answer thank you
Q1 - answer C P(analyst or positive impact) = P(analyst) + P(positive impact) - P(analyst and positive impact) = (130/200) + (110/200) - (130/200 * 110/200) = 0.8425
- Use addition rule. 130 analysts, 110 positive. 70 positive analysts. Prob = 130/200 + 110/200 - 70/200 = 170/200 = .85 2) Do these steps: - Solve for YTM at purchase. ‘i’= 4.98 - New YTM is 3.98. Use new YTM to calculate new bond price. -> PV = 10,733 - Total return is capital appreciation + coupon in the last year -> (10733-10440 + 600)/10440 = 8.56%
I am guessing Q2 is 9%. First i calc the YTM, so using solver is 4.984%. Then drop the YTM by 1% to 3.984%, the PV = 10,898. Therefore the total return is 9.0%. Anyone else?
Agree with: C for Q1 - I did it as 1 - p(neither analyst or positive, i.e. negative CEO) = 1 - 30/(40+30+70+60) = 85% B for 2 as with Isura’s explanation - though you need to remember to change n to 4 (as Isura did).
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