CHAPTER 21: OPTION VALUATION
1. The value of a put option also increases with the volatility of the stock. We see this from the put-call parity theorem as follows: P = C S0 + PV(X) + PV(Dividends) Given a value for S and a risk-free interest rate, t
CHAPTER 26: INVESTMENT POLICY AND
THE FRAMEWORK OF THE CFA INSTITUTE
1.
a.
i. Return Requirement: IPS Y has the appropriate language. Since the Plan is
currently under-funded, the primary objective should be to make the pension fund
financially stronger.
CHAPTER 25: INTERNATIONAL DIVERSIFICATION
1.
Initial investment = 2,000 × $1.50 = $3,000
Final value = 2,400 × $1.75 = $4,200
Rate of return = ($4,200/$3,000) − 1 = 0.40 = 40%
2.
a.
3.
c.
4.
a.
$10,000/2 = £5,000
£5,000/£40 = 125 shares
b.
To fill in the
CHAPTER 23: FUTURES AND SWAPS: MARKETS AND
APPLICATIONS
1.
a.
S0 × (1 + rM ) − D = (1,425 × 1.06) – 15 = 1,495.50
b.
S0 × (1 + rf ) − D = (1,425 × 1.03) – 15 = 1,452.75
c.
The futures price is too low. Buy futures, short the index, and invest the
procee
CHAPTER 22: FUTURES MARKETS
1.
a.
The closing futures price for the June contract was 1,307.50, which has a
dollar value of:
$250 × 1,307.50 = $326,875
Therefore, the required margin deposit is: $32,687.50
b.
The futures price increases by: 1,320.00 – 1,
CHAPTER 20: OPTIONS MARKETS: INTRODUCTION
1.
a.
b.
c.
d.
e.
f.
2.
Call option, X = $80.00
Put option, X = $80.00
Call option, X = $85.00
Put option, X = $85.00
Call option, X = $90.00
Put option, X = $90.00
Cost
$4.40
$0.75
$1.35
$2.90
$0.25
$6.80
Payoff
CHAPTER 19: FINANCIAL STATEMENT ANALYSIS
1.
ROE = Net profits/Equity = Net profits/Sales × Sales/Assets × Assets/Equity
= Net profit margin × Asset turnover × Leverage ratio
= 5.5% × 2.0 × 2.2 = 24.2%
2.
ROA = ROS × ATO
The only way that Crusty Pie can
CHAPTER 18: EQUITY VALUATION MODELS
1.
P0 = D1/(k – g) = $2.10/(0.11 – 0) = $19.09
2.
I and II
3.
a.
k = D1/P0 + g
0.16 = $2/$50 + g ⇒ g = 0.12 = 12%
b.
P0 = D1/(k – g) = $2/(0.16 – 0.05) = $18.18
The price falls in response to the more pessimistic divide
CHAPTER 16: MANAGING BOND PORTFOLIOS
1.
The percentage change in the bond’s price is:
−
2.
Duration
7.194
× ∆y = −
× 0.005 = −0.0327 = −3.27% or a 3.27% decline
1+ y
1.10
a.YTM = 6%
(1)
Time until
Payment
(years)
1
2
3
(2)
(3)
PV of CF
Cash Flow
(Disco
CHAPTER 9: THE CAPITAL ASSET PRICING MODEL
1.
E(rP) = rf + β P [E(rM ) – rf ]
18 = 6 + β P(14 – 6) ⇒ β P = 12/8 = 1.5
2.
If the security’s correlation coefficient with the market portfolio doubles (with all
other variables such as variances unchanged), t
CHAPTER 1: THE INVESTMENT ENVIRONMENT
1.
a.
Cash is a financial asset because it is the liability of the federal
government.
b.
c.
Society as a whole is worse off, since taxpayers, as a group will make up for
the liability.
a.
The bank loan is a financi
CHAPTER 15: THE TERM STRUCTURE OF INTEREST RATES
1. Expectations hypothesis: The yields on long-term bonds are geometric averages of present and expected future short rates. An upward sloping curve is explained by expected future short rates being hi
CHAPTER 3: HOW SECURITIES ARE TRADED
1. a. In addition to the explicit fees of $70,000, FBN appears to have paid an implicit price in underpricing of the IPO. The underpricing is $3 per share, or a total of $300,000, implying total costs of $370,000. b. N