Chapter 6 Summary
Nick Dobratz 0919536
The expected rate of return of a portfolio is the weighted average of the component asset
expected returns with the investment proportions as weights. The variance of a portfolio is a
sum of the contributions of the
Chapter 7 Summary
Nick Dobratz 0919536
The CAPM assumes investors are rational, single-period planners who agree on a
common input list from security analysis and seek mean-variance optimal portfolios.
The CAPM Assumes:
o Markets are large and investors a
Chapter 9 Summary
Nick Dobratz 0919536
Behavioral finance focuses on systematic irrationalities that characterize investor decision
making. These behavioral shortcoming may be consistent with several efficient market
anomalies.
Among the information proce
Chapter 10 Summary
Nick Dobratz 0919536
Debt securities are distinguished by their promise to pay a fixed or specified stream of
income to their holders. The coupon bond is a typical debt security.
Treasury notes and bonds have original maturities greater
Chapter 4 Summary
Nick Dobratz 0919536
There are three different companies that are classified and regulated as investment
companies. The three include: Unit investment trust, closed-end management companies
and open-end management companies. Unit investm
Dr. Lee
Rachel Gellerman
FIN 420
Chapter 4 Summary
Chapter 4 discusses mutual funds, unit investment trusts, hedge funds, and exchangetraded funds. Investment companies are financial intermediaries that invest the funds of
individual investors in securiti
Chapter 5 Summary
Nick Dobratz 0919536
Investors face a trade-off between risk and expected return. Using historical data can help
confirm our ideas that assets with low degrees of risk should provide lower returns on
average than ones of higher risk.
Shi
Chapter 8 Summary
Nick Dobratz 0919536
Research has shown that to a close approximation stock prices seem to follow a random walk
with no discernible predictable patterns that investors can exploit. Such findings are now taken
to be evidence of market eff
Dr. Lee
Rachel Gellerman
FIN 420
Chapter 3 Summary
Chapter 3 discusses the venues and procedures available for trading securities in the
United States. Securities are issued in one of two markets, the primary market, and the secondary
market. The primary
Chapter 11 Summary
Nick Dobratz 0919536
Even default-free bonds such as treasury issues are subject to interest rate risk. Longer
term bonds generally are more sensitive to interest rate shifts than short-term bonds. A
measure of the average life of a bon
FIN 340 Practice Questions Chapter 22
1(3).The xed price in an option contract at which the owner can buy or sell the underlying asset
is called the option's:
A. opening price.
B. intrinsic value.
C. strike price.
D. market price.
E. time value.
2(5).An o
1.
The option to abandon is:
A. a
real option.
B. usually of little value because of the costs associated with abandonment.
C. irrelevant in capital budgeting analysis.
D. nearly always less relevant the option to expand.
E. of no v
Quiz 4 Fin 340 MMI no taxes and MMI taxes
2. The proposition that the value of the firm is independent of its capital
structure is called:
A. the capital asset pricing
model.
B. MM Proposition I (no
taxes).
C. MM Proposition II (no
taxes).
D. the law of o
FIN 340 Quiz 6 MMII with taxes.
7. A general rule for managers to follow is to set the firm's capital structure
such that the firms:
A. size is
maximized.
B. value is
maximized.
C. bondholders are
secured.
D. suppliers of raw materials are
satisfied.
E. d
Quiz 5 Fin 340 MMII no tax
3. The proposition that the cost of equity is a positive linear function of
capital structure is called:
A. the capital asset pricing
model.
B. MM Proposition I (no
taxes).
C. MM Proposition II (no
taxes).
D. the law of one
pric
Quiz 3 August 30 2106
36 Phil's Carvings wants to have a weighted average cost of capital of 9.5
. percent. The firm has an aftertax cost of debt of 6.5 percent and a cost of
equity of 12.75 percent. What debt-equity ratio is needed for the firm to
achiev
Solutions to Chapter 5
The Time Value of Money
1.
$1,000 1.04 = $1,040.00 interest = $40
$1,040 1.04 = $1,081.60 interest = $1,081.60 $1,040 = $41.60
After 10 years, your account has grown to $1,000 (1.04)10 = $1,480.24.
Interest earned in 10th year = $1,
Solutions to Chapter 6
Valuing Bonds
1.
The bond pays a coupon of 6.25%, which means annual interest is $62.50. The bond is
selling for 152.8203 = $1,528.203. Therefore, the current yield is $62.50/$1,528.203 = 4.09%.
The current yield exceeds the yield t
Solutions to Chapter 11
Introduction to Risk, Return, and the Opportunity Cost of Capital
1.
a. For the period 19002013, average rate of return = 11.5% (see Table 11-1).
b. For the period 19002013, average risk premium = 7.6% (see Table 11-1).
c. For the
Solutions to Chapter 13
The Weighted-Average Cost of Capital and Company Valuation
1.
D
25.7
( V )= ( 27 .648 ) +25.7 =.59
a.
Book Value
b.
Market Value
( D )= ( 83.5025.7 ) +25.7 =.32
V
.648
c. Market value is the proper measure, as it is determined by c
Solutions to Chapter 12
Risk, Return, and Capital Budgeting
The risks of deaths of individual policyholders are largely independent and are therefore
diversifiable. The insurance company is satisfied to charge a premium that reflects
actuarial probabiliti
Solutions to Chapter 4
Measuring Corporate Performance
1.
a. Market value = 657 mil $83 = $54,531 million
Market value added = 54,531 17,532 = $36,999 million
b. Market / book = 54,531 / 17,532 = 3.11
c. Yes. The company has increased the value of the equ