What is a derivative?
For us to understand a derivative is a security with a price that is dependent upon or
derived from one or more underlying assets. The derivative itself is a contract between
two or more parties based upon the asset or assets and the

4. what must be the Beta of a portfolio with E(rp)= 20%, if rf = 5% and E(rm)= 15%?
Free rate of return
5%
Expected Market Return
15%
Expected Return of the Portfolio
20%
Beta
1.5
5. The market price of a security is $40. Its expected rate of return is 13

5. Suppose your expectations regarding the stock market are as follows:
State of the Economy
Boom
Normal Growth
Recession
Probability
0.3
0.4
0.3
HPR
44%
14%
-16%
Mean
14%
Variance
0.0540
Use eqations 5.6-5.8 to compute the mean
and standard deviation of

12. A municipal bond carries a coupon of 6 3/4%, and is trading at par.
What would be the equivalent taxable yield of this bond to a taxpayer in a 35% tax bracket?
Par Value
100
Coupon Rate
6.75
Tax Bracket
35%
Rate on Municipal Bond
0.0675
Equivalent Tax

17. Here four industries and four forecast for the macroeconomy. Choose the industry that you would expect
to perform best in each scenario.
Industries: Housing contruction, Health care, Gold mining, Steel production.
Deep recession: Falling inflation, fa

4. A coupon bond paying semianual interest is reported as having an ask price of 117% of its $1
If the last interest payment was made one month ago and the coupon rate is 6%, what is the invo
Ask Price
Coupon Rate
Par Value
Days sinde last Interest Paymen

Why are several countries using the negative interest rates?
Negative interest rate refers to the case when cash deposits incur a charge for storage
at a bank, rather than receiving interest income. For Example; imagine a bank that pays
negative interest.

Chapter 02 - Asset Classes and Financial Instruments
CHAPTER TWO
ASSET CLASSES AND FINANCIAL INSTRUMENTS
CHAPTER OVERVIEW
One of the early investment decisions that must be made in building a portfolio is the asset allocation
decision. This chapter introd

M2Discussion
Efficient Market
The efficient market hypothesis is an investment theory that stated that it is not possible
for an investor to outperform the market because all available information is already
built into all stock prices and it is impossibl

M1Discussion
How would you describe the investment climate at this point in time?
Before the vote on June 23 in the UK in favor of abandoning the European Union, the
economic data and financial market developments they indicated that the world
economy was