FIN 501 - Problem Set 1
Due on Monday, October 3
Based on the empirical evidence on asset returns discussed in class, briey answer the following
questions.
1)
1. Explain the ecient market hypothesis (EMH) and the joint hypothesis problem. Discuss how
we c
Financial Management Association
Survey and Synthesis Series
Asset Pricing and Portfolio
Choice Theory
R<.!ill Options: :Vlanaging Strategic Investment in aD Uncertain World
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Beyond Greed and Fear: Understanding Behav
FIN 501 - Problem Set 2
Due on Monday, October 10
1)
Suppose there exist 3 states of the world s = 1, 2, 3 and 2 assets x1 = (2, 1, 0) and x2 = (0, 1, 0).
1. Suppose p1 = 1 and p2 = 0.3. What state prices are consistent with these prices?
2. Solve for the
FIN 501 - Problem Set 3
1) Consider a general Von Neumann-Morgenstern utility function u(x) and a lottery which adds
an amount h to your personal wealth c in case of victory (which occurs with probability ) and
subtracts the same amount in case of loss:
S
FIN 501 - Problem Set 5
Consider an economy in which there are three risky assets (A, B , and C ) and one riskless asset.
Asset A has an expected net return of 15% and the variance of its return is 0.20. Asset B has an
expected net return of 20% and a var
FIN 501 - Problem Set 5
1)
Suppose that the return of a zero coupon bond of maturity
i
satises:
ri = i f + i
where
Cov(i , j ) = 0
whenever
i 6= j,
Cov(i , f ) = 0.
and
Currently the yield of all zero coupon bonds is 5% annually compounded, that is the pr
FIN 501 - Problem Set 1
Determine whether the following statements are true or false. Provide a proof or a counterexample.
1)
1. Law of one price and complete markets imply no strong arbitrage.
2. Law of one price and complete markets imply no arbitrage.
FIN 501 - Problem Set 2
1)
Suppose there exist 3 states of the world s = 1, 2, 3 and 2 assets x1 = (2, 1, 0) and x2 = (0, 1, 0).
1. Suppose p1 = 1 and p2 = 0.3. What state prices are consistent with these prices?
2. Solve for the unique pricing kernel q .
FIN 501 - Problem Set 4
Due on Monday, October 24
Consider a general Von Neumann-Morgenstern utility function u(x) and a lottery which adds
an amount h to your personal wealth c in case of victory (which occurs with probability ) and
subtracts the same am