1. BPI is exposed to the ff.

risks
Foreign exhange rate
Debtors' ability to pay
Interest rate movement
Household consumption level
High ratio of older personnel or management during COVID
Number of labor force who were layoff during the period

The level of exposure of this bank to 3 other systematic factors are 0.50, 0.65, and 0.70 with each factor change data of 5%, 3.5%, and 1.5%, respectively. This is a blue-chip company which is included in the
PSEi and a reasonable assessment of its market sensitivity is 1.38. The government on-the-run bond has interest earnings of 3.8% and PSEi return is 7.8%

a. With the listed risks, identify the systematic risks from unsystematic risks.
b. USing the identified systematic risks calculate the expected return of BPI stock using Arbitrage Pricing Model
c. Extract the needed data and calculate beta
d. Calculate the CAPM rate of return of the BPI stock. If 10/31/2020 price is P90.00 and the 10/31/2021 price is P97.00. Is it undervalued, overvalued, or fairly valued?

Systematic Risks 10.90%

Unsystematic Risk 90.10%

APM return 90000

CAPM return 81000

Actual Return 90000

Valuation assessment overvalued

2. BSAM borrowed a 2-year loan beginning in 1 year for a principal amount of P5 million.
1-year spot rate = 7%
3-year spot rate = 9%

a.) Calculate the 1-year discount factor. 0.934579439 93.45794393%

0.9345794393 0.9345794393

b.) Calculate the 3-year discount factor. 0.77218348

0.7721834801 0.7721834801

c.) Calculate the forward rate of a 2-year loan to be issued in 1-year (2f1). 10.01% per annum
0.7721834801 = 0.9345794393 x f(2,1)
0.8262363237 0.8262363237

d.) Calculate for 2-year spot rate. (Hint: use equal or average rate per period). 8.5%

e.) Calculate the value today of the loan. 3.86 million

3860917.4003053 alliah - pacheck na lang din

3. Find the present value of the cash flows at 13 percent interest:

Year Cash Flow (Php) 0 1 2 3 4
1 - - 20000 - 900
2 20,000
3 - Solution
4 900 n cf Pv factor [1/1.13)^n] Pv[Pv factorxCF)
0 0 1 0
1 0 0.8849557522 0
2 20000 0.7831466834 15662.93367
3 0 0.6930501623 0
4 900 0.6133187277 551.9868549
PV₀ 16214.920522 -shiela (check niyo na lang din)

4. Assume that there are four stocks whoae returns and sensitives are as follows:

Stock Factor Risk premium (%) Productivity Sensitivity Inflation sensitivity Ra=Rrf+[Ba∗(Rm−Rrf)]
1 1 0.2 2.0 1 3.2 %
2 0.643 3.0 0.2 2 4.929 %
3 -1.157 1.0 1.0 3 1.843 %
4 -0.486 2.0 2.0 4 2.028 %

a. If risk-free rate is 3% what is the expected return of each stock?

Stock 1 3.2 %
stock 2 4.929 % alliah-pacheck na lang
Stock 3 1.843 %
Stock 4 2.028 %

b. Given a proportion of 35%, 30%, 20%, and 15% for stocks 1,2,3, and 4, respectively, what is the portfolio expected return.
weights (proportion??)
Stock 1 35% 3.2 1.12
stock 2 30% 4.929 1.4787
Stock 3 20% 1.843 0.3686
Stock 4 15% 2.028 0.3042
3.2715 in percent alliah-pacheck

5. An analyst has estimated that the returns for an asset, conditional on the performance of the overall economy, are:

Return Probability Economic Growth

5% 20% Poor
10% 40% Average
14% 40% Good

The conditional expected returns on the market portfolio are:

 Return Probability Economic Growth
2% 20% Poor
10% 40% Average
15% 40% Good

According to the CAPM, if the risk-free rate is 5% and the risky asset has a beta of 1.1. Is the stock overpriced, underpriced, fairly priced.
Expected Return 0.0040
0.0400
0.0600
Total 0.1040 10.4 in percent

CAPM Return 1.1*(10.4-5)+5 10.94 in percent

Valuation assessment overvalued alliah- ata?

req return > exp return = overvalued

6. An analyst has estimated that the returns for an asset, conditional on the performance of the overall economy, are:

Return Probability Economic Growth

5% 20% Poor
10% 40% Average
14% 40% Good

The conditional expected returns on the market portfolio are:

Return Probability Economic Growth

2% 20% Poor
10% 40% Average
15% 40% Good

According to the CAPM, if the risk-free rate is 5% and the risky asset has a beta of 1.1. Is the stock overpriced, underpriced, fairly priced.
Select the correct response:
a. sell (or sell short) the risky asset because its expected return is less than equilibrium expected return on the market.
b. Sell (or sell short) the risky asset because its expected return is not sufficient to compensate for its systematic risks. possible answer
c. buy the risky asset because the analyst expects the return on it to be higher than its required return in equillibrium.