Chapter 12 Technical Analysis and Behavioral Finance
Our brain is not always working in a rational way. Thinking and emotion run on the same brain. Often
time, normal thinking mixed up with emotions in decision making process leads to bad decisions.
CAPITAL ALLOCATION TO ONE RISKY PORTFOLIO
The process of constructing of an investor portfolio.
Top-down process with 3 steps:
1. Capital allocation between the risky portfolio and risk-free asset
2. Asset allocation across broad asset classes
Chapter 10 - Arbitrage Pricing Theory and Multifactor Models of Risk and Return
ARBITRAGE PRICING THEORY AND MULTIFACTOR MODELS
OF RISK AND RETURN
Arbitrage Pricing Theory
Arbitrage opportunities exist if an investor can construct a zero inves
Chapter 5 Risk, Return, and the Historical Record
Rates of return: Single period
HPR = Holding period return
P0 = Beginning price
P1 = Ending price
D1 = Dividend during period one
I1 = Inte
Chapter 2 ASSET CLASSES AND FINANCIAL INSTRUMENTS
1) Before Tax yield, After Tax Yield, and Equivalent taxable yield
After-tax yield = Rate on the taxable bond x (1 Tax rate)
Two bonds: one muni with 3.5% yield and one corporate bond with 5% yiel
Chapter 1 Introduction
Real Assets & financial Assets:
Real assets are assets used to produce goods and services.
Financial assets are claims on real assets or the income generated by them.
Primary assets & Derivative Assets:
The primary asset has
RISK AND RETURN AND THE HISTORICAL RECORDS
During a period of severe inflation, a bond offered a nominal HPR of 80% per year. The
inflation rate was 70% per year.
a. What was the real HPR on the bond over the year?
[(1 + rn)\( 1 + i)] 1
Chapter 3 Securities Markets
1. F B N Inc. has just sold 100,000 shares in an initial public offering. The underwriters explicit fees
were $ 70,000. The offering price for the shares was $ 50, but immediately upon issue, the share
price jumped to $ 53.
Chapter 2- Asset Classes and Financial Instruments
A municipal bond carries a coupon of 6 % and is trading at par. What is the equivalent taxable
yield to a taxpayer in a combined federal plus state 34% tax bracket?
The equivalent taxable yield is: 6.7