1. Student NameStudent IDTutor Name Ali Taqi201000556 Ghassan Alsoud Mohammed Haji201100040 Fatima Mohammed201000393 Marwa Malik201000472

2.  DJIA  Consists of 30 “Blue-Chip” US stocks  Best-known market indicator in the world  We have invested $1m in ETF  (-2x) the daily average of DJIA

4. - Investment Strategy: - Short Selling - Inverse ETF Short Position - (-2X) the DJIA - Invest $1,000,000

5. - Portfolio Chart - Using excel (using sum product of ‘quantity’) - Fluctuating but generally increasing - Investor will profit at “low points”

6. - Basis Price: - It is the Actual Invested Amount 1) Capital x Weight (in decimal) to get invested amount 2) Invested amount / Stock Price to get the number of stocks 3) Round up the number of stocks 4) Number of Stocks (rounded up) x Stock Price to get the Actual Invested Amount

7.  Monetary Policy by the Federal Reserve Federal Reserve tightens the Monetary Policy and raise interest rates Restrictive Monetary policy = weak stock performance Expansionary Monetary Policy= strong stock Performance The US dollar Wage stagnation

8.  Risky in long-term Leverage issues Asset management responsibilities Counterparty risk Costlier than traditional ETFs Less tax-efficient

9. - Confidence Level: 5%, Holding Period: 1-Day 1) Calculate Profit/Loss (Daily Returns were calculated for the Returns VaR) 2) Put them in order (highest losses to highest profits) 3) Multiply total observations (251) by 5%, we’ll get 12.55 4) [(Observation 13 - Observation 12) x 0.55] + Observation 12 5) VaR = 319.01, (9833.179 for daily return VaR) 6) Use PERCENTILE for confirmation

10. - Confidence Level: 5%, Holding Period: 1-Day, Z-Score (5%): 1.96 1) Find Mu (Average) of Profit/Loss (Daily Returns for daily return VaR) 2) Find Sigma (Standard Deviation) of Profit/ Loss (Daily Returns for daily return VaR) 3) Z-Score x Sigma – Mu 4) VaR = 394.7, (11929.17 for daily return VaR)

11. - Historical VaR is more accurate because: - linear VaR cannot give the correct estimation when it comes to extreme market events - linear VaR does not take into account the skews, return distribution, and kurtosis

12.  Inflation  Interest rate  Unemployment

15.  Investment portfolio of $100,000 is invested in US treasury securities.  30 years treasury Bond “CUSIP 912810QN1” 50% weight.  10 years treasury note “CUSIP 912828PX2” 50% weight.

16.  Duration. - It measures number of years needed to refund the bond price by it internal cash flows  Dv01. - Measures how much the bond value will change if the interest rate increased or decreased by 1 basis point.

17.  30 years treasury Bond “CUSIP 912810QN1” DescriptionData Bond CUSIP912810QN1 Settlement date15-Feb-11 Maturity date15-Feb-41 coupon rate4.75% Percent yield4.75% Redemption value100 frequency ( 1 = annual, 2 = semiannual, 4 = quarterly)2 Basis (1 = Actual/actual, 2 = Actual/360, 3 = Actual/365, 4 = European 30/360)1 price100 Quantity500 BondDurationDV01 912810QN116.2819665179.521203970.15904257  Duration: 16.28 - The time required to refund the internal cash flow of the bond is 16 years and 3 months. - After 16 years and three months the fluctuations in interest rates doesn’t affect the portfolio value.  Dv01: $79.52 - The bond value will be changed by $79.52 if yield increased or decreased by 1 basis point.

18.  10 years treasury note “CUSIP 912828PX2”  Duration: 8.47 - The time required to refund the internal cash flow of the bond is 8 years and 5 months. - After 8 years and 5 months the fluctuations in interest rates doesn’t affect the portfolio value.  Dv01: $41.45 - The bond value will be changed by $41.45 if yield increased or decreased by 1 basis point. DescriptionData Bond CUSIP912828PX2 Settlement date15-Feb-11 Maturity date15-Feb-21 coupon rate3.6250% Percent yield3.6650% Redemption value99.667623 frequency ( 1 = annual, 2 = semiannual, 4 = quarterly)2 Basis (1 = Actual/actual, 2 = Actual/360, 3 = Actual/365, 4 = European 30/360)1 Price99.43646822 Quantity501 BondDurationDV01 912828PX28.47341065541.452933070.082705747

19. Value at Risk “VaR”  Measures the worst possible of losses in dollars that a portfolio expected to loss over period of time.  Var for the period from April 1, 2013 - March 31, 2014 with significant level of 5%. Two type of VaR:  Historical VaR  Variance-Covariance

20.  Returns are re-arranged from the worst to the best and suggest that the history it will show itself again.  Assumes that portfolio returns are distributed normally.  Factors affect Variance-Covariance VaR : - Expected returns. - Standard deviation.

21. Number of observation250 250*5%= 12.5 12= ($891.06) 13= ($889.03) ($891.06)- ($889.03)= ($2.03) ($2.03)*0.5=($1.01) ($891.06)+ ($1.01)= ($892.08) Significance Level5% Confidence Level95% Historical VaR($892.08)  The confident level is 95%.  losses will not exceed 5%.  The historical Var calculation is and var value is ($892.08)

22. R1R2 R 0.034630.02234 Slandered Deviation "Sigma" 0.2195118030.411003577 DV01 79.5212039741.45293307 Rho 0.815635113 Z of 5% significance level 1.64 Component1Component2Component3Component4 1040.2967760.6044958380.3806133660.375321341 VaR978.99  The confident level of the portfolio is 95%, the portfolio expected 978 in one day 5% of the time.

23. - Types of investors A) Bullish B) Bearish - Option Spread

24.  Possibility that counterparty defaults  United Parcel Service Inc. - ‘AA’ rating  Delta Airlines – ‘A’ rating  Verizon Communication Inc - ‘BBB’ rating  Pennsylvania Elec. Co – ‘BBB’ rating  Low default risk  Chances that losses exceed $28343.22 less than 1%