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Exam 2 Fall 2003 4030

Exam 2 Fall 2003 4030 - Finance 4030 001 004 Fall 2003...

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Finance 4030 001 & 004 Name________________________________________________ Fall 2003 Exam 2 October 15, 2003 1. The S&P 500 Index, the Wilshire 5000 Index, the Russell 3000 Index and the Lehman Aggregate Index share what construction characteristics? (3) i. geometric mean returns, weighted equally ii. arithmetic mean returns, weighted by price iii. arithmetic mean returns, weighted by capitalization iv. geometric mean returns, weighted by capitalization 2. What is the relationship between the Russell 1000 Index and the Russell 2000 Index? (2) 3. For the two stocks (A & B) below, calculate a price-weighted index return and a capitalization-weighed index return for period 1. (4) A B Price per share at time 0 \$30 \$90 Market capitalization at time 0 \$4.5 Billion \$500 Million Total Return for period 1 10% 20% 1

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Price Weighted_____________________________ Capitalization Weighted____________________ 4. What are the three main factors to consider in constructing an index? (3) 5. coefficients of –1, 0, .5 and 1. Label each and, in a few words, describe why each graph appears as it does. (16) Portfolio Risk and Return 0% 4% 8% 12% 16% 0% 5% 10% 15% 20% 25% Standard Deviation Expected return Portfolio Risk and Return 0% 4% 8% 12% 16% 0% 5% 10% 15% 20% 25% Standard Deviation Coefficient__________ Coefficient__________ 2 of 12
Portfolio Risk and Return 0% 4% 8% 12% 16% 0% 5% 10% 15% 20% 25% Standard Deviation Expected return Portfolio Risk and Return 0% 4% 8% 12% 16% 0% 5% 10% 15% 20% 25% Standard Deviation Coefficient__________ Coefficient__________ 6. (2) 7. Besides the bid/ask spread, name the two most important factors in market liquidity. (2) 8. What is the impact on the risk position of an underwriter of an equity IPO of the decision whether to use a negotiated form of issuance versus a best efforts offering? (3) 3 of 16

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Exam 2 Fall 2003 4030 - Finance 4030 001 004 Fall 2003...

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