Chapter 11, Risk and Return
|
|
- Jasmin Walton
- 7 years ago
- Views:
Transcription
1 Chapter 11, Risk and Return 1. A portfolio is. A) a group of assets, such as stocks and bonds, held as a collective unit by an investor B) the expected return on a risky asset C) the expected return on a collection of risky assets D) the variance of returns for a risky asset E) the standard deviation of returns for a collection of risky assets 2. The principle of diversification tells us that: A) Concentrating an investment in two or three large stocks will eliminate all of your risk. B) Concentrating an investment in two or three large stocks will reduce your overall risk. C) Spreading an investment across many diverse assets cannot (in an efficient market) eliminate any risk. D) Spreading an investment across many diverse assets will eliminate all of the risk. E) Spreading an investment across many diverse assets will eliminate some of the risk. 3. The linear relation between an asset's expected return and its beta coefficient is the: A) Reward to risk ratio. B) Portfolio weight. C) Portfolio risk. D) Security market line. E) Market risk premium. 4. Which of the following is FALSE about calculating expected portfolio returns and variances? A) You need to calculate the weight of each asset relative to the total portfolio to calculate the portfolio return and the portfolio variance. B) Portfolio return can be calculated using the expected return and portfolio weight for each asset. C) The portfolio return is needed to calculate the portfolio variance. D) The portfolio return and variance are dependent on the possible states of nature. E) The portfolio variance is a weighted average of the variances of the individual assets in the portfolio. Page 1
2 5. Diversification works because: A) Unsystematic risk exists. B) Forming stocks into portfolios reduces the standard deviation of returns for each stock. C) Firm-specific risk can be never be reduced. D) Stocks earn higher returns than bonds. E) Portfolios have higher returns than individual assets. 6. In market equilibrium: A) All assets will have the same degree of systematic risk. B) Assets will have the same reward to risk ratio. C) Each firm's reward to risk ratio will be based on a different risk-free rate of return. D) Systematic risk can be diversified away. E) All assets will have the same risk premium. 7. Stock A has a beta coefficient of 0.9, and stock B has a beta coefficient of 1.2. Which of the following statements is FALSE regarding these two stocks? A) Stock A is less risky from the market's perspective than a typical stock, and stock B is more risky than a typical stock. B) Stock B, if purchased, will increase the market risk of a portfolio more than stock A would (if purchased). C) Stock A necessarily must have a lower standard deviation of returns than stock B. D) Stock B must have a higher expected return than stock A if markets are efficient. E) Stock A has the same reward to risk ratio as stock B. 8. Which of the following is FALSE concerning diversification? Assume that the securities being considered for selection into a portfolio are not perfectly correlated. A) As more securities are added to the portfolio, the unsystematic risk of the portfolio declines. B) As more securities are added to the portfolio, the total risk of the portfolio declines. C) As more securities are added to the portfolio, the systematic risk of the portfolio declines. D) As more securities are added to the portfolio, the portfolio risk eventually approaches the level of systematic risk in the market. E) If you hold more than 100 securities, then there is little benefit to be gained by adding a 101 st security to the portfolio. 9. Portfolio risk is comprised of risk risk. A) firm-specific; plus diversifiable B) systematic; minus unsystematic C) diversifiable; plus unsystematic D) market; plus firm-specific E) market; plus non-diversifiable Page 2
3 10. Which of the following would decrease a portfolio's systematic risk? A) Common stock is sold and replaced with Treasury bills. B) Stocks with a beta equal to the market beta are added to a portfolio of Treasury bills. C) Low-beta stocks are sold and replaced with high-beta stocks. D) A stock is sold in favor of a different stock with the same beta. E) The portfolio beta is less than one and the risk-free rate declines. 11. The return priced into a stock in an efficient market is the return. A) actual B) unsystematic C) systematic D) unexpected E) expected 12. A telecommunications company just announced that earnings for the first quarter of the current year fell at an annualized rate of 20%, much worse than the previous quarter's performance. Upon the announcement, the stock price did not change. (The market in general was also unchanged.) Which of the following is most likely correct? A) The market was surprised by the announcement. B) Interest rates in the economy must have increased. C) Investors likely anticipated the news release. D) The price didn't change because the market in general didn't change either. E) The firm must have a beta coefficient equal to one. 13. The following information is given: The risk-free rate is 7%, the beta of stock A is 1.2, the beta of stock B is 0.8, the expected return on stock A is 13.5%, and the expected return on stock B is 11.0%. Further, we know that stock A is fairly priced and that the betas of stocks A and B are correct. Which of the following regarding stock B must be true? A) Stock B is also fairly priced. B) The expected return on stock B is too high. C) The expected return on stock A is too high. D) The price of stock B is too high. E) The price of stock A is too high. Page 3
4 14. What is the risk premium for the following returns if the risk-free rate is 4%? State Probability Return Boom Good Recession Depression A) B) C) D) E) What is the expected market return if the expected return on asset A is 19% and the risk-free rate is 5%? Asset A has a beta of 1.4. A) 14% B) 15% C) 16% D) 19% E) 24% 16. What is the portfolio beta if 60% of your money is invested in the market portfolio, and the remainder is invested in a risk-free asset? A) 0.40 B) 0.50 C) 0.60 D) 0.75 E) You hold three stocks in your portfolio: A, B, and C. The portfolio beta is Stock A comprises 15% of the dollar value of your holdings and has a beta of 1.0. If you sell all of your investment in A and invest the proceeds in the risk-free asset, your new portfolio beta will be: A) 0.60 B) 0.88 C) 1.00 D) 1.25 E) 1.40 Page 4
5 18. You hold four stocks in your portfolio: A, B, C, and D. The portfolio beta is Stock C comprises 30% of the dollar value of your holdings and has a beta of If you sell all of your holdings in stock C, and replace it with an equal investment in stock E (which has a beta of 0.8), what will be your new portfolio beta? A) 0.72 B) 0.89 C) 1.00 D) 1.05 E) You form a portfolio by investing equally in A (beta=0.6), B (beta=1.6), the risk-free asset, and the market portfolio. What is your portfolio beta? A) 0.6 B) 0.8 C) 1.0 D) 1.2 E) 1.6 State Probability Return on A Return on B Boom.25 15% 3% Normal.65 10% 4% Bust.10 4% 9% 20. What is the expected return for asset A? A) 7.35% B) 8.50% C) 9.75% D) 10.65% E) 11.90% 21. What is the standard deviation of returns for asset A? A) 1.3% B) 1.8% C) 2.6% D) 3.1% E) 4.5% Page 5
6 22. What is the standard deviation of returns for asset B? A) 1.4% B) 2.2% C) 2.9% D) 3.6% E) 5.2% 23. What is the expected return on a portfolio with weights of 40% in asset A and 60% in asset B? A) 3.1% B) 4.5% C) 5.9% D) 8.4% E) 9.3% Page 6
Review for Exam 2. Instructions: Please read carefully
Review for Exam Instructions: Please read carefully The exam will have 1 multiple choice questions and 5 work problems. Questions in the multiple choice section will be either concept or calculation questions.
More informationCHAPTER 10 RISK AND RETURN: THE CAPITAL ASSET PRICING MODEL (CAPM)
CHAPTER 10 RISK AND RETURN: THE CAPITAL ASSET PRICING MODEL (CAPM) Answers to Concepts Review and Critical Thinking Questions 1. Some of the risk in holding any asset is unique to the asset in question.
More informationCHAPTER 11: ARBITRAGE PRICING THEORY
CHAPTER 11: ARBITRAGE PRICING THEORY 1. The revised estimate of the expected rate of return on the stock would be the old estimate plus the sum of the products of the unexpected change in each factor times
More information1. Portfolio Returns and Portfolio Risk
Chapter 8 Risk and Return: Capital Market Theory Chapter 8 Contents Learning Objectives 1. Portfolio Returns and Portfolio Risk 1. Calculate the expected rate of return and volatility for a portfolio of
More informationChapter 6 The Tradeoff Between Risk and Return
Chapter 6 The Tradeoff Between Risk and Return MULTIPLE CHOICE 1. Which of the following is an example of systematic risk? a. IBM posts lower than expected earnings. b. Intel announces record earnings.
More informationChapter 7 Risk, Return, and the Capital Asset Pricing Model
Chapter 7 Risk, Return, and the Capital Asset Pricing Model MULTIPLE CHOICE 1. Suppose Sarah can borrow and lend at the risk free-rate of 3%. Which of the following four risky portfolios should she hold
More informationReview for Exam 2. Instructions: Please read carefully
Review for Exam 2 Instructions: Please read carefully The exam will have 25 multiple choice questions and 5 work problems You are not responsible for any topics that are not covered in the lecture note
More informationSolution: The optimal position for an investor with a coefficient of risk aversion A = 5 in the risky asset is y*:
Problem 1. Consider a risky asset. Suppose the expected rate of return on the risky asset is 15%, the standard deviation of the asset return is 22%, and the risk-free rate is 6%. What is your optimal position
More informationAnswers to Concepts in Review
Answers to Concepts in Review 1. A portfolio is simply a collection of investments assembled to meet a common investment goal. An efficient portfolio is a portfolio offering the highest expected return
More informationModels of Risk and Return
Models of Risk and Return Aswath Damodaran Aswath Damodaran 1 First Principles Invest in projects that yield a return greater than the minimum acceptable hurdle rate. The hurdle rate should be higher for
More information3. You have been given this probability distribution for the holding period return for XYZ stock:
Fin 85 Sample Final Solution Name: Date: Part I ultiple Choice 1. Which of the following is true of the Dow Jones Industrial Average? A) It is a value-weighted average of 30 large industrial stocks. )
More informationChapter 5. Risk and Return. Copyright 2009 Pearson Prentice Hall. All rights reserved.
Chapter 5 Risk and Return Learning Goals 1. Understand the meaning and fundamentals of risk, return, and risk aversion. 2. Describe procedures for assessing and measuring the risk of a single asset. 3.
More informationChapter 13 Composition of the Market Portfolio 1. Capital markets in Flatland exhibit trade in four securities, the stocks X, Y and Z,
Chapter 13 Composition of the arket Portfolio 1. Capital markets in Flatland exhibit trade in four securities, the stocks X, Y and Z, and a riskless government security. Evaluated at current prices in
More informationChapter 5 Risk and Return ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS
Chapter 5 Risk and Return ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS 5-1 a. Stand-alone risk is only a part of total risk and pertains to the risk an investor takes by holding only one asset. Risk is
More informationThe CAPM (Capital Asset Pricing Model) NPV Dependent on Discount Rate Schedule
The CAPM (Capital Asset Pricing Model) Massachusetts Institute of Technology CAPM Slide 1 of NPV Dependent on Discount Rate Schedule Discussed NPV and time value of money Choice of discount rate influences
More informationSAMPLE MID-TERM QUESTIONS
SAMPLE MID-TERM QUESTIONS William L. Silber HOW TO PREPARE FOR THE MID- TERM: 1. Study in a group 2. Review the concept questions in the Before and After book 3. When you review the questions listed below,
More information1. a. (iv) b. (ii) [6.75/(1.34) = 10.2] c. (i) Writing a call entails unlimited potential losses as the stock price rises.
1. Solutions to PS 1: 1. a. (iv) b. (ii) [6.75/(1.34) = 10.2] c. (i) Writing a call entails unlimited potential losses as the stock price rises. 7. The bill has a maturity of one-half year, and an annualized
More informationChapter 8 Risk and Return
Chapter 8 Risk and Return LEARNING OBJECTIVES (Slides 8-2 & 8-3) 1. Calculate profits and returns on an investment and convert holding period returns to annual returns. 2. Define risk and explain how uncertainty
More informationCorporate Finance Sample Exam 2A Dr. A. Frank Thompson
Corporate Finance Sample Exam 2A Dr. A. Frank Thompson True/False Indicate whether the statement is true or false. 1. The market value of any real or financial asset, including stocks, bonds, CDs, coins,
More informationStock Valuation and Risk
11 Stock Valuation and Risk CHAPTER OBJECTIVES The specific objectives of this chapter are to: explain methods of valuing stocks, explain how to determine the required rate of return on stocks, identify
More informationCost of Capital Presentation for ERRA Tariff Committee Dr. Konstantin Petrov / Waisum Cheng / Dr. Daniel Grote April 2009 Experience you can trust.
Cost of Capital Presentation for ERRA Tariff Committee Dr. Konstantin Petrov / Waisum Cheng / Dr. Daniel Grote April 2009 Experience you can trust. Agenda 1.Definition of Cost of Capital a) Concept and
More informationPortfolio Performance Measures
Portfolio Performance Measures Objective: Evaluation of active portfolio management. A performance measure is useful, for example, in ranking the performance of mutual funds. Active portfolio managers
More informationCapital budgeting & risk
Capital budgeting & risk A reading prepared by Pamela Peterson Drake O U T L I N E 1. Introduction 2. Measurement of project risk 3. Incorporating risk in the capital budgeting decision 4. Assessment of
More informationRISKS IN MUTUAL FUND INVESTMENTS
RISKS IN MUTUAL FUND INVESTMENTS Classification of Investors Investors can be classified based on their Risk Tolerance Levels : Low Risk Tolerance Moderate Risk Tolerance High Risk Tolerance Fund Classification
More informationMBA 8230 Corporation Finance (Part II) Practice Final Exam #2
MBA 8230 Corporation Finance (Part II) Practice Final Exam #2 1. Which of the following input factors, if increased, would result in a decrease in the value of a call option? a. the volatility of the company's
More informationCHAPTER 7: OPTIMAL RISKY PORTFOLIOS
CHAPTER 7: OPTIMAL RIKY PORTFOLIO PROLEM ET 1. (a) and (e).. (a) and (c). After real estate is added to the portfolio, there are four asset classes in the portfolio: stocks, bonds, cash and real estate.
More informationRisk and Return Models: Equity and Debt. Aswath Damodaran 1
Risk and Return Models: Equity and Debt Aswath Damodaran 1 First Principles Invest in projects that yield a return greater than the minimum acceptable hurdle rate. The hurdle rate should be higher for
More informationChapter 5. Conditional CAPM. 5.1 Conditional CAPM: Theory. 5.1.1 Risk According to the CAPM. The CAPM is not a perfect model of expected returns.
Chapter 5 Conditional CAPM 5.1 Conditional CAPM: Theory 5.1.1 Risk According to the CAPM The CAPM is not a perfect model of expected returns. In the 40+ years of its history, many systematic deviations
More informationPaper 2. Derivatives Investment Consultant Examination. Thailand Securities Institute November 2014
Derivatives Investment Consultant Examination Paper 2 Thailand Securities Institute November 2014 Copyright 2014, All right reserve Thailand Securities Institute (TSI) The Stock Exchange of Thailand Page
More informationBUSINESS FINANCE (FIN 312) Spring 2008
BUSINESS FINANCE (FIN 312) Spring 2008 Assignment 3 Instructions: please read carefully You can either do the assignment by yourself or work in a group of no more than two. You should show your work how
More information15.433 Investments. Assignment 1: Securities, Markets & Capital Market Theory. Each question is worth 0.2 points, the max points is 3 points
Assignment 1: Securities, Markets & Capital Market Theory Each question is worth 0.2 points, the max points is 3 points 1. The interest rate charged by banks with excess reserves at a Federal Reserve Bank
More informationCHAPTER 6. Topics in Chapter. What are investment returns? Risk, Return, and the Capital Asset Pricing Model
CHAPTER 6 Risk, Return, and the Capital Asset Pricing Model 1 Topics in Chapter Basic return concepts Basic risk concepts Stand-alone risk Portfolio (market) risk Risk and return: CAPM/SML 2 What are investment
More informationChapter 10 Capital Markets and the Pricing of Risk
Chapter 10 Capital Markets and the Pricing of Risk 10-1. The figure below shows the one-year return distribution for RCS stock. Calculate a. The expected return. b. The standard deviation of the return.
More informationKey Concepts and Skills
Chapter 10 Some Lessons from Capital Market History Key Concepts and Skills Know how to calculate the return on an investment Understand the historical returns on various types of investments Understand
More informationEquity Risk Premium Article Michael Annin, CFA and Dominic Falaschetti, CFA
Equity Risk Premium Article Michael Annin, CFA and Dominic Falaschetti, CFA This article appears in the January/February 1998 issue of Valuation Strategies. Executive Summary This article explores one
More informationCFA Examination PORTFOLIO MANAGEMENT Page 1 of 6
PORTFOLIO MANAGEMENT A. INTRODUCTION RETURN AS A RANDOM VARIABLE E(R) = the return around which the probability distribution is centered: the expected value or mean of the probability distribution of possible
More informationFIN 432 Investment Analysis and Management Review Notes for Midterm Exam
FIN 432 Investment Analysis and Management Review Notes for Midterm Exam Chapter 1 1. Investment vs. investments 2. Real assets vs. financial assets 3. Investment process Investment policy, asset allocation,
More informationLecture 15: Final Topics on CAPM
Lecture 15: Final Topics on CAPM Final topics on estimating and using beta: the market risk premium putting it all together Final topics on CAPM: Examples of firm and market risk Shorting Stocks and other
More informationRethinking Fixed Income
Rethinking Fixed Income Challenging Conventional Wisdom May 2013 Risk. Reinsurance. Human Resources. Rethinking Fixed Income: Challenging Conventional Wisdom With US Treasury interest rates at, or near,
More informationInstructor s Manual Chapter 12 Page 144
Chapter 12 1. Suppose that your 58-year-old father works for the Ruffy Stuffed Toy Company and has contributed regularly to his company-matched savings plan for the past 15 years. Ruffy contributes $0.50
More informationENTREPRENEURIAL FINANCE: Strategy, Valuation, and Deal Structure
ENTREPRENEURIAL FINANCE: Strategy, Valuation, and Deal Structure Chapter 11. The Entrepreneur s Perspective on Value Questions and Problems 1. A venture that requires an investment of $5 million is expected
More informationChapter 9 Interest Rates
Chapter 9 Interest Rates Concept Questions 1. Short-term rates have ranged between zero and 14 percent. Long-term rates have fluctuated between about two and 13 percent. Long-term rates, which are less
More information1. CFI Holdings is a conglomerate listed on the Zimbabwe Stock Exchange (ZSE) and has three operating divisions as follows:
NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY FACULTY OF COMMERCE DEPARTMENT OF FINANCE BACHELOR OF COMMERCE HONOURS DEGREE IN FINANCE PART II 2 ND SEMESTER FINAL EXAMINATION MAY 2005 CORPORATE FINANCE
More informationLecture 6: Arbitrage Pricing Theory
Lecture 6: Arbitrage Pricing Theory Investments FIN460-Papanikolaou APT 1/ 48 Overview 1. Introduction 2. Multi-Factor Models 3. The Arbitrage Pricing Theory FIN460-Papanikolaou APT 2/ 48 Introduction
More informationCHAPTER 20: OPTIONS MARKETS: INTRODUCTION
CHAPTER 20: OPTIONS MARKETS: INTRODUCTION 1. Cost Profit Call option, X = 95 12.20 10 2.20 Put option, X = 95 1.65 0 1.65 Call option, X = 105 4.70 0 4.70 Put option, X = 105 4.40 0 4.40 Call option, X
More informationEcon 422 Summer 2006 Final Exam Solutions
Econ 422 Summer 2006 Final Exam Solutions This is a closed book exam. However, you are allowed one page of notes (double-sided). Answer all questions. For the numerical problems, if you make a computational
More informationChapter 1 The Investment Setting
Chapter 1 he Investment Setting rue/false Questions F 1. In an efficient and informed capital market environment, those investments with the greatest return tend to have the greatest risk. Answer: rue
More informationHow To Understand The Value Of A Mutual Fund
FCS5510 Sample Homework Problems and Answer Key Unit03 CHAPTER 6. INVESTMENT COMPANIES: MUTUAL FUNDS PROBLEMS 1. What is the net asset value of an investment company with $10,000,000 in assets, $500,000
More informationUse the table for the questions 18 and 19 below.
Use the table for the questions 18 and 19 below. The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value): Maturity (years) 1 3 4 5 Price
More informationFinance 3130 Corporate Finiance Sample Final Exam Spring 2012
Finance 3130 Corporate Finiance Sample Final Exam Spring 2012 True/False Indicate whether the statement is true or falsewith A for true and B for false. 1. Interest paid by a corporation is a tax deduction
More informationAFM 472. Midterm Examination. Monday Oct. 24, 2011. A. Huang
AFM 472 Midterm Examination Monday Oct. 24, 2011 A. Huang Name: Answer Key Student Number: Section (circle one): 10:00am 1:00pm 2:30pm Instructions: 1. Answer all questions in the space provided. If space
More informationCAPM, Arbitrage, and Linear Factor Models
CAPM, Arbitrage, and Linear Factor Models CAPM, Arbitrage, Linear Factor Models 1/ 41 Introduction We now assume all investors actually choose mean-variance e cient portfolios. By equating these investors
More information15.401 Finance Theory
Finance Theory MIT Sloan MBA Program Andrew W. Lo Harris & Harris Group Professor, MIT Sloan School Lecture 13 14 14: : Risk Analytics and Critical Concepts Motivation Measuring Risk and Reward Mean-Variance
More informationApplied Economics For Managers Recitation 5 Tuesday July 6th 2004
Applied Economics For Managers Recitation 5 Tuesday July 6th 2004 Outline 1 Uncertainty and asset prices 2 Informational efficiency - rational expectations, random walks 3 Asymmetric information - lemons,
More informationExam 1 Sample Questions
Exam 1 Sample Questions 1. Asset allocation refers to. A. the allocation of the investment portfolio across broad asset classes B. the analysis of the value of securities C. the choice of specific assets
More informationGESTÃO FINANCEIRA II PROBLEM SET 3 - SOLUTIONS (FROM BERK AND DEMARZO S CORPORATE FINANCE ) LICENCIATURA UNDERGRADUATE COURSE
GESTÃO FINANCEIRA II PROBLEM SET 3 - SOLUTIONS (FROM BERK AND DEMARZO S CORPORATE FINANCE ) LICENCIATURA UNDERGRADUATE COURSE 1 ST SEMESTER 010-011 Chapter 10 Capital Markets and the Pricing of Risk 10-1.
More informationBefore You Invest Post Test (HS)
Before You Invest Post Test (HS) 1. Common stock ownership gives investors a. voting rights in shareholders meetings b. guaranteed dividends c. low risk with a high rate of return. 2. The statement risk
More informationWEB APPENDIX. Calculating Beta Coefficients. b Beta Rise Run Y 7.1 1 8.92 X 10.0 0.0 16.0 10.0 1.6
WEB APPENDIX 8A Calculating Beta Coefficients The CAPM is an ex ante model, which means that all of the variables represent before-thefact, expected values. In particular, the beta coefficient used in
More informationThe Investment Performance of Rare U.S. Coins By: Raymond E. Lombra, Ph.D.
The Investment Performance of Rare U.S. Coins By: Raymond E. Lombra, Ph.D. An independent study of the investment performance of rare U.S. coins for the period January 1979 to December 2011. Analysis by
More informationInvestigating Use of Beta Coefficients for Stock Predictions
University of Akron: Ohio s Polytechnic University IdeaExchange@UAkron Honors Research Projects The Dr. Gary B. and Pamela S. Williams Honors College Spring 2015 Investigating Use of Beta Coefficients
More informationChapter 5 Financial Forwards and Futures
Chapter 5 Financial Forwards and Futures Question 5.1. Four different ways to sell a share of stock that has a price S(0) at time 0. Question 5.2. Description Get Paid at Lose Ownership of Receive Payment
More informationThe Tangent or Efficient Portfolio
The Tangent or Efficient Portfolio 1 2 Identifying the Tangent Portfolio Sharpe Ratio: Measures the ratio of reward-to-volatility provided by a portfolio Sharpe Ratio Portfolio Excess Return E[ RP ] r
More informationFinancial Evolution and Stability The Case of Hedge Funds
Financial Evolution and Stability The Case of Hedge Funds KENT JANÉR MD of Nektar Asset Management, a market-neutral hedge fund that works with a large element of macroeconomic assessment. Hedge funds
More informationCHAPTER 23: FUTURES, SWAPS, AND RISK MANAGEMENT
CHAPTER 23: FUTURES, SWAPS, AND RISK MANAGEMENT PROBLEM SETS 1. In formulating a hedge position, a stock s beta and a bond s duration are used similarly to determine the expected percentage gain or loss
More informationAN OVERVIEW OF FINANCIAL MANAGEMENT
CHAPTER 1 Review Questions AN OVERVIEW OF FINANCIAL MANAGEMENT 1. Management s basic, overriding goal is to create for 2. The same actions that maximize also benefits society 3. If businesses are successful
More informationM.I.T. Spring 1999 Sloan School of Management 15.415. First Half Summary
M.I.T. Spring 1999 Sloan School of Management 15.415 First Half Summary Present Values Basic Idea: We should discount future cash flows. The appropriate discount rate is the opportunity cost of capital.
More informationValue-Based Management
Value-Based Management Lecture 5: Calculating the Cost of Capital Prof. Dr. Gunther Friedl Lehrstuhl für Controlling Technische Universität München Email: gunther.friedl@tum.de Overview 1. Value Maximization
More informationFinance Homework p. 65 (3, 4), p. 66-69 (1, 2, 3, 4, 5, 12, 14), p. 107 (2), p. 109 (3,4)
Finance Homework p. 65 (3, 4), p. 66-69 (1, 2, 3, 4, 5, 12, 14), p. 107 (2), p. 109 (3,4) Julian Vu 2-3: Given: Security A Security B r = 7% r = 12% σ (standard deviation) = 35% σ (standard deviation)
More informationLECTURE 17: RISK AND DIVERSIFICATION
LECTURE 17: RISK AND DIVERSIFICATION I. STUDENT LEARNING OBJECTIVES A. Risk aversion B. Investment implications of risk aversion C. Standard deviation as a measure of risk for individual securities and
More informationwww.optionseducation.org OIC Options on ETFs
www.optionseducation.org Options on ETFs 1 The Options Industry Council For the sake of simplicity, the examples that follow do not take into consideration commissions and other transaction fees, tax considerations,
More informationShort Term Investment Review as of September 30, 2015 December 1, 2015
UNIVERSITY OF CALIFORNIA Office of the Chief Investment Officer Short Term Investment Review as of September 30, 2015 December 1, 2015 Growing Portfolios Building Partnerships UC Investments The investment
More informationAdditional Practice Questions for Midterm I
1 Finance 333 Investments Additional Practice Questions for Midterm I Winter 2004 Professor Yan 1. Financial assets. A) directly contribute to the country's productive capacity *B) indirectly contribute
More informationLESSON 28: CAPITAL ASSET PRICING MODEL (CAPM)
LESSON 28: CAPITAL ASSET PRICING MODEL (CAPM) The CAPM was developed to explain how risky securities are priced in market and this was attributed to experts like Sharpe and Lintner. Markowitz theory being
More informationNPH Fixed Income Research Update. Bob Downing, CFA. NPH Senior Investment & Due Diligence Analyst
White Paper: NPH Fixed Income Research Update Authored By: Bob Downing, CFA NPH Senior Investment & Due Diligence Analyst National Planning Holdings, Inc. Due Diligence Department National Planning Holdings,
More informationModule 1 Introduction to ETFs
Module 1 Introduction to ETFs Course #: Title Topic 1: Big picture investing... 3 Which stock to buy?... 3 Why take a big picture approach?... 3 How can you invest in the market?... 4 Topic 2: What are
More informationJournal of Exclusive Management Science May 2015 -Vol 4 Issue 5 - ISSN 2277 5684
Journal of Exclusive Management Science May 2015 Vol 4 Issue 5 ISSN 2277 5684 A Study on the Emprical Testing Of Capital Asset Pricing Model on Selected Energy Sector Companies Listed In NSE Abstract *S.A.
More informationNorthCoast Investment Advisory Team 203.532.7000 info@northcoastam.com
NorthCoast Investment Advisory Team 203.532.7000 info@northcoastam.com NORTHCOAST ASSET MANAGEMENT An established leader in the field of tactical investment management, specializing in quantitative research
More informationLIQUIDITY AND ASSET PRICING. Evidence for the London Stock Exchange
LIQUIDITY AND ASSET PRICING Evidence for the London Stock Exchange Timo Hubers (358022) Bachelor thesis Bachelor Bedrijfseconomie Tilburg University May 2012 Supervisor: M. Nie MSc Table of Contents Chapter
More informationt = 1 2 3 1. Calculate the implied interest rates and graph the term structure of interest rates. t = 1 2 3 X t = 100 100 100 t = 1 2 3
MØA 155 PROBLEM SET: Summarizing Exercise 1. Present Value [3] You are given the following prices P t today for receiving risk free payments t periods from now. t = 1 2 3 P t = 0.95 0.9 0.85 1. Calculate
More informationMid-Term Spring 2003
Mid-Term Spring 2003 1. (1 point) You want to purchase XYZ stock at $60 from your broker using as little of your own money as possible. If initial margin is 50% and you have $3000 to invest, how many shares
More informationUnit06 Sample Homework Problems CHAPTER 10. INVESTMENT RETURNS AND AGGREGATE MEASURES OF STOCK MARKETS
Unit06 Sample Homework Problems CHAPTER 10. INVESTMENT RETURNS AND AGGREGATE MEASURES OF STOCK MARKETS 1. You buy a stock for $40. After a year the price rises to $50 but falls back to $40 at the end of
More information1 Capital Asset Pricing Model (CAPM)
Copyright c 2005 by Karl Sigman 1 Capital Asset Pricing Model (CAPM) We now assume an idealized framework for an open market place, where all the risky assets refer to (say) all the tradeable stocks available
More informationInvestment Risk: Don t Avoid It Manage It!
Investment Risk: Don t Avoid It Manage It! Today s Agenda What is risk? Types of investment risk Investments that carry each type of risk Match personal goals with investments and risk levels Risk management
More informationWel Dlp Portfolio And Risk Management
1. In case of perfect diversification, the systematic risk is nil. Wel Dlp Portfolio And Risk Management 2. The objectives of investors while putting money in various avenues are:- (a) Safety (b) Capital
More informationHolding Period Return. Return, Risk, and Risk Aversion. Percentage Return or Dollar Return? An Example. Percentage Return or Dollar Return? 10% or 10?
Return, Risk, and Risk Aversion Holding Period Return Ending Price - Beginning Price + Intermediate Income Return = Beginning Price R P t+ t+ = Pt + Dt P t An Example You bought IBM stock at $40 last month.
More informationINVESTMENTS IN OFFSHORE OIL AND NATURAL GAS DEPOSITS IN ISRAEL: BASIC PRINCIPLES ROBERT S. PINDYCK
INVESTMENTS IN OFFSHORE OIL AND NATURAL GAS DEPOSITS IN ISRAEL: BASIC PRINCIPLES ROBERT S. PINDYCK Bank of Tokyo-Mitsubishi Professor of Economics and Finance Sloan School of Management Massachusetts Institute
More informationSEI s Approach to Asset Allocation
SEI s Approach to Asset Allocation Presented by: Jim Smigiel Managing Director and Portfolio Manager Portfolio Strategies Group What is diversification? Sharpe ratio? Peak Sharpe Ratio Loss of efficiency:
More informationMutual Fund Investing Exam Study Guide
Mutual Fund Investing Exam Study Guide This document contains the questions that will be included in the final exam, in the order that they will be asked. When you have studied the course materials, reviewed
More informationPractice Questions for Midterm II
Finance 333 Investments Practice Questions for Midterm II Winter 2004 Professor Yan 1. The market portfolio has a beta of a. 0. *b. 1. c. -1. d. 0.5. By definition, the beta of the market portfolio is
More informationA Basic Introduction to the Methodology Used to Determine a Discount Rate
A Basic Introduction to the Methodology Used to Determine a Discount Rate By Dubravka Tosic, Ph.D. The term discount rate is one of the most fundamental, widely used terms in finance and economics. Whether
More informationEverYield Investments is a Registered Investment Advisor. Registered with the State and the Securities and Exchange Commission (SEC)
Introduction to EverYield Investments is a Registered Investment Advisor Independent 2 Not paid to promote any products Not paid any commissions on any transactions No conflict of interest Can recommend
More informationInvestment Analysis (FIN 670) Fall 2009. Homework 5
Investment Analysis (FIN 670) Fall 009 Homework 5 Instructions: please read careully You should show your work how to get the answer or each calculation question to get ull credit The due date is Tuesday,
More informationANSWERS TO END-OF-CHAPTER PROBLEMS WITHOUT ASTERISKS
Part III Answers to End-of-Chapter Problems 97 CHAPTER 1 ANSWERS TO END-OF-CHAPTER PROBLEMS WITHOUT ASTERISKS Why Study Money, Banking, and Financial Markets? 7. The basic activity of banks is to accept
More informationChapter 11. Topics Covered. Chapter 11 Objectives. Risk, Return, and Capital Budgeting
Chapter 11 Risk, Return, and Capital Budgeting Topics Covered Measuring Market Risk Portfolio Betas Risk and Return CAPM and Expected Return Security Market Line CAPM and Stock Valuation Chapter 11 Objectives
More informationPractice Set #4 and Solutions.
FIN-469 Investments Analysis Professor Michel A. Robe Practice Set #4 and Solutions. What to do with this practice set? To help students prepare for the assignment and the exams, practice sets with solutions
More informationChapter 11. Topics Covered. Chapter 11 Objectives. Risk, Return, and Capital Budgeting
Chapter 11 Risk, Return, and Capital Budgeting Topics Covered Measuring Market Risk Portfolio Betas Risk and Return CAPM and Expected Return Security Market Line CAPM and Stock Valuation Chapter 11 Objectives
More informationThe Language of the Stock Market
The Language of the Stock Market Family Economics & Financial Education Family Economics & Financial Education Revised November 2004 Investing Unit Language of the Stock Market Slide 1 Why Learn About
More informationRisk and Return. a. 25.3% b. 22.5% c. 23.3% d. 17.1%
Risk and Return 1. The Duncan Company's stock is currently selling for $15. People generally expect its price to rise to $18 by the end of next year and that it will pay a dividend of $.50 per share during
More informationConcentrated Stock Diversification Analysis
Concentrated Stock Diversification Analysis Example analysis Three Harbor Drive, Suite 315 Sausalito, CA 94965 (415) 339-4300 www.aperiogroup.com Copyright 2013 Aperio Group LLC Aperio v. [Latin] to make
More informationAn introduction to Value-at-Risk Learning Curve September 2003
An introduction to Value-at-Risk Learning Curve September 2003 Value-at-Risk The introduction of Value-at-Risk (VaR) as an accepted methodology for quantifying market risk is part of the evolution of risk
More information