Economics 171
Financial Economics
Fall 2016
George Hall
Problem Set 4
Due in class, not electronically, Thursday, October 13, 2016
Instructions: For the analytical questions make sure to show your work for full credit. Do not
report only the final answer
Returns
1. Two Period Consumption Model
2. The Equilibrium Real Interest Rate
3. Inflation and the Nominal Interest Rate
4. Taxes
5. Pricing Contingent Claims
6. Risk and Return
Inter-temporal Choice: Irving Fisher
Assumptions, for now
1. no uncertainty
2
Review of math and statistical concepts
1. Random Variables
2. Expected Value
3. Variance, Standard Deviation
4. Covariance
5. Normal Distribution
If you need more review, Khan Academy is a good start.
What do investors care about?
When investing in a fin
Economics 171
Financial Economics
Fall 2016
George Hall
Problem Set 1
Due in class, not electronically, Tuesday, September 6, 2016
1. Suppose housing prices across the world double.
(a) Is society any richer for the change?
(b) Are homeowners wealthier?
(
Economics 171
Financial Economics
George J. Hall
Tuesdays and Thursdays 3:30 to 5:00
Pollock 001
Brandeis University
Introduction: Mechanics and the Big Picture
1. Introductions
2. Overview of the course
!
!
mechanics
goals
3. The problem finance solves
4
Asset Classes and Financial Instruments
1. The Money Market
2. The Capital Market
Debt
Equity
Derivatives
3. The Trading of Securities
Financial Securities
We can divide financial markets into:
Money market: money-like instruments
Short-term, highly liqui
Lecture 2
Review of statistical concepts Institutional background
Expected Value
The expected value (or mean) of a random variable measures what we think of as an average outcome If a random variable takes on the values r(1), r(2). with probabil
Lecture 11
Review of CAPM Single Index Model
1
CAPM-what is it?
CAPM predicts the relationship between the expected return on the security and its risk Beta a measure of the asset's covariance with the overall market- is the "correct" measure of
Lecture 12
Formulas: statistics review
Present value: Future value: Expected value: Variance: Correlation:
P 0 P t (1 r)t
Pt
Po * (1 r ) t
N
E (r )
i 1
p i * ri
N
Var (r )
i 1
pi * (ri
cov( x, y )
x y
E (r )2
corr( x, y )
T t 1
Bond value:
Lecture 4
Money Market Instruments(continued)
Security Trading
Buying on Margin
An investor can receive a short term loan from a broker in order to buy stock on margin. "Percentage Margin" = Own funds/Value of Stock Things to think about: Ini
Bond pricing, Duration
What's up with the Fed?
Wondering about the Fed's latest efforts to prevent a general financial meltdown? Have questions about where it will all end? Our local Fed expert, Steve Cecchetti, will give his interpretation of recen
Lecture 20
Options Markets
Dividend Discount Model
1. Simplest Dividend Discount Model
P0
2.
D1 k g
D1 k g E1(1 b) k ROE*b
P0
3.
P0 = Value of Assets in Place + Present Value of Growth Opportunities
P0 = E1/k + PVGO
4. 5
P0 (1 b) E1 k
The Term Structure of Interest Rates
Review of Last Lecture
Duration: Calculation
Duration is the weighted average of the times until each payment. The weights are equal to the fraction of the price received at different points in time (they sum
Financial Economics
Econ 171a
Lecture1:
Introduction
Time Value of Money
Review of Statistics
Syllabus
Prof. Rimma Yusim
[email protected]
Teaching Assistant: Thang Tan Nguyen
Office Hours
My office hours:
Wednesday 11a.m.-12p.m.
PhD room
TA’s office h
Lecture 3
Money Market Instruments(continued)
Review of Previous Lecture
Financial markets
Broadly speaking we can divide financial markets into:
Money Markets
-Short-term,highly liquid, low-risk securities -Often referred to as cash or cash e
FIN 171a: Financial Economics
Brandeis International Business School Spring 2008 Problem Set 5: Options Due Friday, April 18th in the mailbox of Xiaodi or Thursday, April 17 in class.
1. (10 points) Option payoff and profit: You are given the closin