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 reflecting
an effective yield of 4%. After 1 month, the investor sold the MaKam
for a price reflecting an effective yield of 10%. What was the actual
yield the investor received for his investment?



















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











P =
100
(1+ K)
n / 365
:
P
1
=
100
(1+ 0.1)
2/12
= 98.424
P
2
=
100
(1+ 0.04)
3/12
= 99.024
yeild =
P
1
P
2
P
2
= 0.606%

Pv =
100
(1+ X)
10
12
= 95.26
100
95.26
|
\

|
.
|
12
10
= (1+ X) =1.06


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) at
the end of the period. What will be the bond price 2 years and 7
months after issuance if the discount rate at that time is 8%?













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











5) A corporate Bond for 4 years is paying a yearly coupon of 5% as
well 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 to
pay for it? If he is looking for a 7% YTM.











PV =
cF
(1+ d)
t
t=1
n

+
F
(1+ d)
n
=
=
3
(1.08
0.5
)
5
6
+
3
(1.08
0.5
)
11
6
+
3
(1.08
0.5
)
17
6
+
3
(1.08
0.5
)
23
6
+
103
(1.08
0.5
)
29
6
=
= 96.498

104 =
3.23
(1+ d)
5
365 t=1
n

+
103.23
(1+ d)
370
365
d = 2.4%
Pari =100+ 3.23*
360
365
=103.266

PV =
F
N
+
c(N +1 n)
N
1+ d
( )
n
=
5
1.07
1
+
n=1
N

5
1.07
2
+
100
2
+
5*2
2
1.07
3
+
100
2
+
5*1
2
1.07
4
=
5
1.07
+
5
1.07
2
+
55
1.07
3
+
52.5
1.07
4
= 93.99


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 as
follows:


















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








S=100
S=120
S=80
S=144
S=96
S=64
S d u
Pu Pd
Sd Su
Pu Pd
h
* ) (
_ ) 10 * * *

=
) * ( * ) 1 ( * * _ ) 11 * * * P S h r Pd Sd h Pu Su h + + = + = +
( )
( )
( )
( ) R
Pu
d u
d R
Pd
d u
R u
P
1
* _ ) 12 * * *
(

=

H =
PV
bond
*CR
PV
stock
1=
109.3*112.5
22360
1= 0.45 = 45%




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


8) The Makam is offered and sold by the BOI in three ways, what are
they?

- 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 Trustee
Every 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 holders
Will 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 Mortgage
Open-end Mortgage
First Mortgage Bond
Second Mortgage Bond


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, and
in 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 agreed
price, 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 Put
option.

13) What information is available for us from the name of the MaKam
1029?

- 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 Group
o Company Analysis:
Business Plan
Management
Financial Analysis
o Putting it All Together


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

- Lecture #9 Slides 7-9:

o The TA-25 index
o Shekel-Dollar exchange-rate
o Shekel-Euro exchange rate
o 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 Chart What kind of chart is it? (
?(Probably up as the , Where is it expected to go in the near future uptrend potential)
Where are the are showing us that Volume is higher during positive days), indicators
What kind of Scaling is ), (Upward from Jan to May, side way since May) ? Lines Trend
(Red for resistance lines? Resistance and Support , Where are the ) arithmetic scale ?( used
?(In the support line during March Validation , Where can we see a for support) and green
between May Rectangle pattern ?(We can see a Patterns , Can we see any April and May)
(they are supporting the uptrend, as the ? Indicators , What can we learn from the and Jun)
and so on. me is higher during positive days) Volu