FIN4011
CHAPTER 4
HANDOUT
[NAV Calculation] At the close of trading on Aug. 1st, the Company XYZ mutual fund held $10,500,000
worth of securities, $1,000,000 of cash, and $500,000 of liabilities. The accrued management fee with the
portfolio manager total
FS-FIN4011 Investments
Homework 3
Due 9/25
1. (PS-14) DRK Inc. has just sold 100,000 shares in an initial public offering. The underwriters
explicit fees were $60,000. The offering price for the shares was $40, but immediately upon issue
the share price j
FS-FIN4011 Investments
Homework 1
Due 9/11
1. (PS-9) Lanni Products is a start-up computer software development firm. It currently owns
computer equipment worth $30,000 and has cash on hand of $20,000 contributed by Lanni's
owners. For each of the followi
Introduction:
The Investment Environment
Prof. Chen Xue
Carl H. Lindner School of Business
University of Cincinnati
FIN 7041: Investments
Outline
Investment
The concept of investment
Real vs. nancial assets
The investment process
Financial Markets
The rol
Asset Allocation:
Combining Cash and One Risky Asset
Prof. Chen Xue
Carl H. Lindner School of Business
University of Cincinnati
FIN 7041: Investments
Introduction
Asset allocation: Allocating your investments across dierent assets
such as stocks, bonds, r
The Capital Asset Pricing Model
Prof. Chen Xue
Carl H. Lindner School of Business
University of Cincinnati
FIN 7041: Investments
Overview
The Capital Asset Pricing Model (CAPM)
The CAPM determines expected returns of individual securities by
combining por
Optimal Risky Portfolio:
Many Risky Assets
Prof. Chen Xue
Carl H. Lindner School of Business
University of Cincinnati
FIN 7041: Investments
Outline
Portfolio Choice with Many Risky Assets
Discussions
Excel Application
Many Risky Assets
Optimal risky portf
Securities Market:
The Issuance and Trading of Securities
Prof. Chen Xue
Carl H. Lindner School of Business
University of Cincinnati
FIN 7041: Investments
Overview
How securities are issued?
Primary vs. secondary Markets
Public vs. private oerings
How sec
Asset Classes and Financial Instruments:
Equity, Market Indexes, and Derivatives
Prof. Chen Xue
Carl H. Lindner School of Business
University of Cincinnati
FIN 7041: Investments
Overview: Segments of Financial Markets
Equity Market:
Common Stocks
Preferre
Carl H. Linder College of Business
University of Cincinnati
FIN 7041: Investments
Exam I Formula Sheet
Suppose nominal interest rate is R and ination rate is i, then real interest rate is r =
Ri
1+i
Suppose the total return on a pure-discount bond that ma
) c? bw'&t'M
Name:
-~-
Your dad just received a big bonus for his great performance at work. He is thinking about investing
the money as a future fund for your wedding (maybe a car). Since you're taking the investment class,
he wants your help. For simpli
Introduction:
Recent Trends and The Financial Crisis
Prof. Chen Xue
Carl H. Lindner School of Business
University of Cincinnati
FIN 7041: Investments
Recent Trends
Computer Networks
We have seen a tremendous adoption of network technology:
Investment acti
Asset Classes and Financial Instruments:
Money Market and Bond Securities
Prof. Chen Xue
Carl H. Lindner School of Business
University of Cincinnati
FIN 7041: Investments
Overview: Segments of Financial Markets
Money Markets
Short-term, marketable, liquid
Introduction to Risk and Return:
Interest Rates and Investment Returns
Prof. Chen Xue
Carl H. Lindner School of Business
University of Cincinnati
FIN 7041: Investments
Overview
Investment decisions should be based on our assessment of the
potential risk a
Introduction to Risk and Return:
Risk and Risk Premium
Prof. Chen Xue
Carl H. Lindner School of Business
University of Cincinnati
FIN 7041: Investments
Overview
How to measure risk?
Standard deviation (volatility)
The normal distribution
Additional measur
Behavioral Finance
Prof. Chen Xue
Carl H. Lindner School of Business
University of Cincinnati
FIN 7041: Investments
Overview
The Behavioral Critique
I can calculate the motion of heavenly bodies, but not
the madness of people. Sir Isaac Newton, in respons
FIN70411SFS Midterm Exam Practice Problems
1. Fixed-Income
Maturity
Feb 15 2015
Coupon
4.000
Bid
105.6250
Yield
3.017
Asked
105.6875
What is the purchase price of one T-bond ($ 1,000 face value)? How much is its first coupon payment ?
~d,~ ;rt'~ = ~/,I/I/
FIN7041 15FS Homework 3 Solution
Chapter 3 Concept Review Problems
1. A stop-loss order will sell a security at the current market price if its price falls below a given level.
With a limit sell order, a security will be sold only at or above a given pric
FIN7041 15FS Homework 2 Solution
Chapter 2 Concept Review Problems
2.
Money market securities are called cash equivalents because of their great liquidity. The
prices of money market securities are generally stable, and they can be converted to cash
quick
FIN7041 15FS Homework 1 Solution
Chapter 1 Concept Review Problems
1.
Real assets determine the material well-being of an economy, while financial assets only
determine the allocation of income generated by these real assets. However, financial assets are
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1:38 PM
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APPENDICES
A
Quantitative Review
B
References to CFA Questions
C
Glossary
bod61789_appa.qxd
11/12/2003
1:38 PM
Page 1006
A
P
P
E
N
D
I
X
A
QUANTITATIVE REVIEW
Students in management and investment courses typ
The Ecient Market Hypothesis:
Empirical Evidences
Prof. Chen Xue
Carl H. Lindner School of Business
University of Cincinnati
FIN 7041: Investments
Review
The Ecient Market Hypothesis
EMH: Stock prices fully reect all available information
Three versions o
Multifactor Asset Pricing Models
Prof. Chen Xue
Carl H. Lindner School of Business
University of Cincinnati
FIN 7041: Investments
Outline
Empirical Performance of the CAPM
Multifactor Asset Pricing Models
Empirical Performance of the CAPM
Testable implica
The Ecient Market Hypothesis:
Ideas and Implications
Prof. Chen Xue
Carl H. Lindner School of Business
University of Cincinnati
FIN 7041: Investments
Overview
Are stock prices predictable?
Maurice Kendall (1953) found that stock prices behaved like
random
The Single-Index Model
Prof. Chen Xue
Carl H. Lindner School of Business
University of Cincinnati
FIN 7041: Investments
Outline
The Single-Index Model: Conceptual Framework
Portfolio Alpha and Beta, Diversication
The Single-Index Model: Estimation
Applyin
Optimal Risky Portfolio:
Two Risky Assets
Prof. Chen Xue
Carl H. Lindner School of Business
University of Cincinnati
FIN 7041: Investments
Outline
Overview
Diversication and Portfolio Risk
Portfolio of Two Risky Assets
Two Risky and One Risk-free Assets
O
The Arbitrage Pricing Theory
Prof. Chen Xue
Carl H. Lindner School of Business
University of Cincinnati
FIN 7041: Investments
Outline
Arbitrage: Concepts and Examples
Large-Market Arbitrage Pricing with Security-Specic Risk
Dierences Between the APT and t
FIN7041 Final Exam Preparation Guide
The Final Exam would cover: (1) Chapters 6 to 9 (mainly calculations); (2) Chapter 10 to 12 (both
concepts and calculations). Concept questions are mostly about important concepts and facts covered in
lecture notes. Ca
1. Suppose the universe of available securities include only two risky assets, A and B, and T-bills.
E(r)
(j
10%
25%
5%
Asset A
Asset B
T-bills
20%
40%
0%
The correlation between fund A and fund B is 0.
cfw_Jrta!Jt:d- /Atl'~" 1'~ v~
!JOr~li?t.'o
_
?
(1) I
Carl H. Linder College of Business
University of Cincinnati
FIN 7041: Investments
Final Exam Formula Sheet
Optimal Portfolio: There are two risky assets, A and B. The expected returns are E(rA ) and
E(rB ), and the standard deviations are A and B . The re
Carl H. Lindner College of Business
University of Cincinnati
FIN7041: Investments
Practice Exam 1
Multiple Choice Questions
1. An investor in a Tbill earns interest by
a
b
( ) receivinginterest payments every 90 days
( ) receiving dividend payments every
Carl H. Lindner College of Business
University of Cincinnati
FIN7041: Investments
Practice Exam 1
Multiple Choice Questions
1. An investor in a T-bill earns interest by
(a) receiving interest payments every 90 days
(b) receiving dividend payments every 30