8. The parameters of the opportunity set are:
E(rS) = 15%, E(rB) = 9%, S = 32%, B = 23%, = 0.15, rf = 5.5%
From the standard deviations and the correlation coefficient we generate the covariance
matrix [note that Cov(rS, rB) = SB]:
Bonds
Stocks
Bonds
529.

Chapter 5 Solutions (Homework #2)
6. We use the below equation to calculate the holding period return of each scenario:
HPR =
Ending Price Beginning Price + Cash Dividend
Be ginning Price
The holding period returns for the three scenarios are:
Boom:
(50

UNIVERSITY OF MARYLAND
Robert H. Smith School of Business
BMGT343 Investments
Fall 2016
I. Information on Instructor
Instructor:
Professor Xiaohui Gao Bakshi
Email:
[email protected] (preferred method of contact)
Office:
4426 Van Munching
Mobile Pho

Basic
1. In what circumstances would you choose to use a dividend discount model rather than a free
cash flow model to value a firm?(LO 13-4)
2. In what circumstances is it most important to use multistage dividend discount models rather
than constant-gro

Chapter 6
Basic
1. In forming a portfolio of two risky assets, what must be true of the correlation coefficient
between their returns if there are to be gains from diversification? Explain.(LO 6-1)
2. When adding a risky asset to a portfolio of many risky

Basic
1. Suppose you've estimated that the fifth-percentile value at risk of a portfolio is 30%. Now
you wish to estimate the portfolio's first-percentile VaR (the value below which lie 1% of the
returns). Will the 1% VaR be greater or less than 30%?(LO 5

Chapter 8: Efficient Market Hypothesis
Random Walks and Efficient Market Hypothesis
efficiency: centers on the idea that stock prices always reflect information
o competition among investors should imply that stock prices fully and accurately reflect publ

Chapter 9: Behavioral Finance and Technical Analysis
Behavioral Critique
Motivation
o Stock prices in 1990s did not appear to match fundamentals
o Evidence of refusal to sell losers
o Economics discipline is exploring behavioral aspects of decision making

Chapter 7: Capital Asset Pricing and Arbitrage Pricing Theory
CAPM: Capital Asset Pricing Model
equilibrium model that underlies all modern financial theory
derived using principles of diversification, but with other simplifying assumptions
captures all o

343 Lecture 16. Mortgages
Mortgage: a loan secured by the collateral of specified real estate property, which obliges the borrower to make
a predetermined series of payments
o lender: mortgagee, borrower: mortgagor
players in the mortgage market
o mortgag

Chapter 4: Rates of Return
Holding Period Return
o assume CF occurs at the end of the period, otherwise missing
[ PsPb+CF ] / Pb
o
one period investment (regardless of the length of the period):
o
Ps is sale price, Pb is buy price, CF is the cash flow du

For the exclusive use of A. Zhang, 2017.
S
w
908N20
ALEX SHARPE'S PORTFOLIO
Professor Colette Southam wrote this case solely to provide material for class discussion. The author does not intend to illustrate
either effective or ineffective handling of a m

INVESTMENTS
BMGT343
Xiaohui Gao
PROBLEMS ON BOND AND BOND
VALUATIONS
2
EXAMPLE 1
Consider a bond with a settlement date of
February 22, 2010, and a maturity date of
March 15, 2018. The coupon rate is 5.5%. If
the yield to maturity of the bond is 5.34%
(bo

Chapter 9
Selected Problems
9-1
Problem 1
a.
The prices of growth stocks may be consistently bid too high due to investo
r overconfidence.
Investors/analysts may extrapolate recent earnings (and dividend) growth t
oo far into the future and thereby infl

INVESTMENTS
BMGT343
Xiaohui Gao
PROBLEM 1, HOW MUCH MONEY IS NEEDED?
An entrepreneur needs to raise money to
finance the operations of her start-up over
the next 3 years, after which her venture will
become self- financing. She estimates that
she will req

INVESTMENTS
BMGT343
Xiaohui Gao
PROBLEMS ON RISK AND RETURN
2
PROBLEM 1
V(12/31/2004)
=V
(1/1/1998)
x (1 + GAR)7
$140,710.04
7
= $100,000 x (1.05)
=
3
5-3
PROBLEM 2
4
5-4
PROBLEM 2
a. The holding period returns for the three
scenarios
(50are:
40 + 2)/40

Problems for Chapter 8
8-1
Problem 1
Zero, otherwise returns from the prior period
could be used to predict returns in the
subsequent period.
8-2
Problem 2
No. Why?
One would have to show that Intel investors
earned a higher rate of return than they
sh

Problems on equity valuation
Example 1
Brennan Company just paid a dividend of
$1.40 per share on its stock. The dividends are
expected to grow at a constant rate of 6%
indefinitely. If investors require a 12% required
rate of return, what is its current

Investments
BMGT343
Xiaohui Gao
Problems on diversification
2
Problem 1
E(r) =
E(r) =
(0.5 x 15%) + (0.4 x 10%) + (0.1 x 6%)
12.1%
6-3
Problem 2
Criteria 1:
Eliminate Fund B
Criteria 2:
Choose Fund D
Lowest correlation,
best chance of
improving return
per

Reflective Journal Entry 1
In Rosss objection to utilitarianism, to me, it seems like he is saying why someone
would produce the maximum good if the person does not receive the benefit or why
would someone fulfill this duty if they do not get the benefit.

Journal 2 Topic 2
Burns and Haga argue that certified management accountants are not genuine
professionals. They argue this on their basis of their Intimidation Model. In this
model, Burns and Haga argue that genuine professionals have the capacity to
int

UNIVERSITY OF MARYLAND
Robert H. Smith School of Business
BMGT343 Investments
Spring 2016
Information on Instructor
Instructor: Professor Ryan Guttridge
Email: [email protected] (preferred method of contact)
Office: 4428 Van Munching
Mobile Phone

INVESTMENTS
BMGT343
Xiaohui Gao
CHAPTER 9
Behavioral Finance and
Technical Analysis
9-2
9.1 The Behavioral Critique
9-3
BEHAVIORALISM BIAS
Motivation
Stock prices in the 1990s did not appear to match
fundamentals,
e.g., high price earnings ratios
Evidenc

Midterm BMGT 343 (Fall 2013)
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Midterm BMGT 343 (Spring 2014)
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Midterm BMGT 343 (Spring 2015)
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NAME: _
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Signature: _
Check to make sure that this exam has a total of 7 pages (including this cover p

Retirement Planning example
A couple will retire in 50 years; they plan to spend about $30,000 a year in retirement,
which should last about 25 years. They believe that they can earn 8 percent interest on
retirement savings.
a. If they make annual payment

Basic Option Strategies
T
0
Feb 29
Mar 23
Position
Cost
Cash Flow Payof
Long Stock
-S0
ST
Short Stock
+S0
-ST
Long Bond
-1
1*(1+rT); rT is ytm
Short Bond
+1
-1*(1+rT)
Long Call
-C0
CT=max(ST-X,0)
Short (write) Call +C0
-CT=-max(ST-X,0)
Long Put
PT=max(X-S

Lecture
Options Markets
15-1
Option Terminology
1. What is a listed call option?
A contract giving the holder the right to buy 100 shares of stock
at a preset price called the exercise or strike price.
Expirations of 1,2,3,6,& 9 months and sometimes 1 y