Answer to Question #5846 in Finance for sarah

Question #5846
You are only allowed to use excel. Question1 Test conditional asset pricing The excel file contains: Monthly returns (including dividends) of the three portfolios constructed . o Monthly returns (including dividends) of the stock index. o Monthly returns of a factor representing the exchange rate risk (a mimicking portfolio constructed based on the SEK/USD exchange rate). o The riskfree rate: the 30-day t-bill rate per year. o The 10-year treasury bond yield to maturity, % per year. 1. Use the three equity portfolios as the test assets and perform a test of conditional multifactor model with the market portfolio (market index) and the mimicking portfolio for the exchange rate risk as factors and the lagged yield spread as the instrument. Note that the yield spread is the difference between the yield on a long term bond and the short term interest rate. b) Plot the conditional betas in a diagram. What are the risk exposure of the different portfolios on the different factors. Question2 The Excel file contains daily data on fixed rate swaps of different maturities a)Compute the first three principal components for the interest rates. b) Run a multiple regression of the annual interest rates of different maturities on the computed principal components (one regression for each maturity). Note: use the function LINEST in Excel to estimate the regressions. c) For each swap compute the percentage of the total variance explained by each of the principal components.
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