Things to Know and Do
FINA 363
Exam 1
Spring 2014
Prof. S. Nikolova
All vocabulary is fair game.
Chapter 5
Be able to calculate holding period returns for stocks and bonds. Be able to annualize these
returns using APR and EAR.
Be able to calculate expecte
NAME: _
Test Quiz 4
FINA 363
Spring 2014
Dr. S. Nikolova
Question 1. (1.5 pts.)
What are the three criteria that a strategy must meet to be considered an arbitrage strategy?
1.
2.
3.
Zero-investment: i wi = 0
Zero-risk: both systematic and non-systematic
Test Quiz 1 Short Answers
What type of information will be most useful when making security selection decisions?
A: Security selection refers to choosing which securities to hold based on their valuation. Firmspecific and security-specific information (e.
Things to Know and Do
FINA 363
Exam 2
Spring 2014
Prof. S. Nikolova
All vocabulary is fair game.
Chapter 9
Be able to apply the CAPM. That is, be able to calculate the expected return, alpha and beta of an
individual stock or a portfolio of stocks. Unders
Question 1
The four-factor model used to construct performance benchmarks for mutual
funds uses the three Fama and French factors and one additional factor
related to _.
Correct Answer:
momentum
Question 2
When the
market risk
premium rises,
stock prices
Investment Principles
Instructor: Dr. Liying Wang
Office: CBA 244
Office hours: Monday and Wednesday 8:45 - 10:45 AM and by
appointment
To contact me
Email: liying.wang@unl.edu
Please start with FINA 363: in the subject line
I do NOT guarantee a respons
Chapter 7
OPTIMAL RISKY PORTFOLIOS
Chapter
Assets
Chapter 6
One risky asset
The risk free asset
(CAL and individual utility function
determines the asset allocation)
Equations
Chapter 7
= +
=
Two risky assets
(combine them to get the optimal risky
asse
Chapter 6
RISK AVERSION AND CAPITAL ALLOCATION TO
RISKY ASSETS
1
Overview
Risk aversion and its estimation
Understand its role in the standard utility function.
Two-step process of portfolio construction
Capital allocation between risky and risk-free as
Part 2. Portfolio Theory and Practice
Chapter 5. Risk, Return, and Historical Record
Chapter 6. Capital Allocation to Risky Assets
Chapter 7. Optimal Risky Portfolio
Chapter 8. Index Models
1
Chapter 5
RISK, RETURN, AND HISTORICAL RECORD
2
Chapter Overvie
Chapter 11
Efficient Market Hypothesis
1
EMH prices immediately reflect all available and relevant
information
Market participants process all relevant information rationally
and quickly
Figure 11.1 Cumulative Abnormal Returns before Takeover Attempts:
Ta
NAME: SOLUTIONS
Test Quiz 3
FINA 363 001/002
Spring 2014
Dr. S. Nikolova
YOU WILL BE GIVEN PARTIAL CREDIT ONLY IF YOU SHOW ALL YOUR WORK.
Question 1.
Asset
Expected Return
Standard Deviation
Beta
Stock A
50%
0.7
Stock B
70%
1.2
Risk-free
4%
Market Port.
1
Question 1
In a multifactor
APT model, the
coefficients on the
macro factors are
often called
Correct Answer:
Response
The coefficients are called factor betas, factor sensitivities, or
Feedback:
factor loadings.
Question 2
Building a zeroinvestment
port
10.value:
10.00 points
You did not receive full credit for this question in a previous attempt
Refer to Figure 2.3 and look at the Treasury bond maturing in May 2030.
a.
How much would you have to pay to purchase one of these bonds? (Do not round
intermed
Chapters 7
QUESTIONS IN CLASS
Judy wants the right mix of stocks and
bonds to get the minimum amount
of risk possible.
Recommend an investment for Judy.
Stocks
Bonds
E[r]
Std deviation
18%
21%
8%
12%
Risk free
4%
rho
0.10
Judys investment will have an E[r
Chapter 12
BEHAVIORAL FINANCE
1
2
Information processing errors
Behavioral biases
Limits to arbitrage
3
Conventional Vs. Behavioral Finance
CONVENTIONAL FINANCE
BEHAVIORAL FINANCE
Prices are correct and equal to
intrinsic value
Resources are allocate
Chapter Two
ASSET CLASSES AND FINANCIAL INSTRUMENTS
Chapter Overview
Asset allocation Asset classes
Money markets vs. capital markets
Types of money market instruments
Capital market securities:
Bonds
Equity
Derivatives
2
The Money Market
Securities
Chapter 10
ARBITRAGE PRICING THEORY
Arbitrage Pricing Theory
The many assumptions underlying the CAPM may be
considered rather restrictive.
An alternative theory of capital asset pricing, the Arbitrage
Pricing Theory, starts from the basic premise that eq
Chapter 14
BOND PRICES AND YIELDS
1
Debt securities and the importance of debt markets
Types of debt securities by issuer
Bond pricing
Bonds with embedded options
Default/credit risk/recovery
2
Debt Securities and the
Importance of Debt
Markets
3
De
Chapter 9
CAPM
1
Overview
Assumptions of the CAPM
Predictions of the CAPM
CML and SML
Estimating the CAPM interpret alpha
Tests of the CAPM
2
Assumptions
General idea: Individuals are as alike as possible (homogeneous).
All investors are rational mea
Chapter 15
THE TERM STRUCTURE OF INTEREST RATES
1
Forward rates
Term structure and yield curve
Theories of the term structure
2
Forward Rates
3
More on Discount Rates
Discount rates for cash flows of different maturities could be
different
Introduce n
Chapter 3
HOW SECURITIES ARE TRADED?
Primary vs. Secondary Security Sales
Primary
New issue
Key factor: issuer receives the proceeds from the sale
Secondary
Existing owner sells to another party
Issuing firm doesnt receive proceeds and is not directly
NAME: digfk'tﬂxﬂ-rii iii"
Short Exam 1
FINA 363 884 A
Spring 2016
Dr. S. Nikolova
(You will be given partial credit only if you show all ofyour work.)
Problem I.
a.) You purchased 500 shares of common stock XYZ on margin for $60 per share. The initial ma