Page 331 - Economics
P. 331
CONFIRMING PAGES
CHAPTER 14W
14W-19
Financial Economics
Web-Based Questions
1. CALCULATING PRESENT VALUES USING CURRENT IN- tors at www.timevalue.com/tools.html . Why the large
TEREST RATES To see the current interest rates (“yields”) difference in present values in the two situations?
on bonds issued by the U.S. government, please go to www. 2. EVALUATING THE RISK LEVELS OF TOP MUTUAL FUNDS
bloomberg.com/markets/rates/index.html and scroll The Security Market Line tells us that assets and portfolios
down to the section labeled U.S. Treasuries. By tradition, that deliver high average expected rates of return should
U.S. government bonds with maturities of less than 1 year also have high levels of risk as measured by beta. Let us see
are called bills, while those with longer maturities are re- if this appears to hold true for mutual fund portfolios. Go to
ferred to as either notes or bonds. The notes have maturi- the Mutual Fund Center at Yahoo Finance at http://
ties of 1 to 10 years, while the bonds have maturities finance.yahoo.com/funds , click on Top Performers, and
exceeding 10 years. What are the current yields on 2-year then click on Overall Top Performers. This will give you
notes and 30-year bonds? Use the current yield for the lists of funds with the 10 best rates of return over various
2-year note to calculate the present value of an investment time periods. Click on each of the 10 funds listed under
that will make a single payment of $95,000 in 2 years. Use “Top Performers—1 Year” and find each fund’s beta listed in
the current yield on the 30-year bond to calculate the pres- the section called Performance and Risk. Do any of the
ent value of an investment that will make a single payment funds have a beta less than 1.0? Do these results make sense
of $95,000 in 30 years. To assist your computations, use the given what you have learned? Should you be impressed that
present value calculator located under Investment Calcula- funds with risky portfolios generate high returns?
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