slides_review02

slides_review02 - Exam 2 Additional problems and review...

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Exam 2 Additional problems and review
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What is an excess return? What is an expected return? What is a risk premium? What do we mean when we speak of the risk of a Fnancial asset? How do we estimate it? 2
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How might one try to estimate the expected return of a share of stock? How might one estimate the dividend growth rate to use in the dividend growth model? 3
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What is the diference between systematic and idiosyncratic risk? Are both kinds oF risk rewarded equally? How is each kind oF risk measured? 4
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What does “beta” refer to? What is the Security Market Line? What does the CAPM say? 5
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If the market risk premium is 8% and the risk-free rate is 3%, what is the expected return for a stock with a beta of 1.5 (according to the CAPM)? Suppose the distribution of daily returns for a particular asset is approximately normal with mean 5% and standard devia- tion 7%. About how likely is a return greater than 19%? 6
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What do we mean by capital market efciency? What are the diFerent ±orms o± market efciency? Is the NYSE an efcient market? I± markets are weak-±orm efcient, what can you say about the use o± technical trading rules? 7
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What is the point of diversiFcation? Why does diversiFca- tion work? Is all risk diversiFable? Is all risk priced? 8
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Suppose there are only two assets available: one is risk-free and the other has a beta equal to 1.0. Suppose I have $1000 to invest. How can I construct a portfolio with a beta equal to 2.0? Suppose the riskfree rate is 3% and the market risk premium
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slides_review02 - Exam 2 Additional problems and review...

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