Chapter
6
Efficient Diversification
Stat ReviewMean, Var, STD, COV, CORR
Notation
Sample (or Population): A collection of numbers
without assigned probabilities
Scenario Analysis: involves probability of
occurrence
Stock Fund
Sample (e.g.) Stock Fund S
1. An order to buy or sell a security at the current price is a
_.
a. limit order
*b. market order
c. stop-loss order
d. stop-buy order
2. According to multiple studies by Ritter, initial public offerings
tend to exhibit _ performance initially and _
perf
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.
1) Which of the following is not a true statement regarding municipal bonds?
1) _
A) The interest income from a municipal bond is exempt from
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.
1) Real assets in the economy include all but which one of the following? 1) _
A) buildings B) land
C) consumer durables D) common stock
Answ
Chapter
8
The Efficient Market
Hypothesis
Insider Trading Experiment
The envelope represents the stock of a drug company.
The firm is testing a new drug. If the drug works, then the
stock is worth $20 ($20 in the envelope). If it does not
work, the stock
Spreadsheet 6.1
Capital market expectations for stock and bond funds
Stock Fund
Scenario Probability Rate of Return
Severe rec 0.05
-37
Mild recess 0.25
-11
Normal gro 0.40
14
Boom
0.30
30
Expected or Mean Ret
SUM:
Bond Fund
Col B x Col C Rate of Re Col B
Chapter
7
Capital Asset Pricing
Theory
7.1 The Capital Asset Pricing Model
Hypothetical Equilibrium (Part 1)
All investors choose to hold market portfolio
In other words, each security is held in proportion to
market value
Market portfolio is on effic
Interpreting the Regression Output from Excel
To use the regression facility in Excel, first be sure you have your data entered in columns. Click on
Tools, then on Data Analysis. From the list of options, choose Regression. A dialog box will open which
al
diversification
Student: _
1. Asset A has an expected return of 15% and a reward-to-variability ratio of .4. Asset B has an
expected return of 20% and a reward-to-variability ratio of .3. A risk-averse investor would prefer
a portfolio using the risk-free
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.6019227957
R Square
0.362311052
Adjusted R Square
0.351316415
Standard Error
8.3758447018
Observations
60
ANOVA
df
Regression
Residual
Total
SS
MS
F Significance F
1 2311.8407696532 2311.841 32.95343 3.64E
Exam
Name
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.
1) Which of the following is not a true statement regarding municipal bonds? 1)
A) The interest income from a municipal bond is exempt from
Chapter
3
Securities Markets
3.1 How Firms Issue Securities: Primary vs. Secondary
Primary
Secondary
New Issue Created/Sold Current owner sells to
another party
Issuer Receives
Issuer Does Not
Proceeds from Sale
Receive Proceeds from
Sale
2
3.1 How Firms
Chapter
4
Mutual Funds and Other
Investment Companies
4.1 Investment Companies
Functions
Record keeping and administration
Diversification and divisibility
Professional management
Lower transaction costs
Definitions
Investment company: Financial in
Chapter
5
Risk and Return: Past
and Prologue
5.1 Rates of Return
Holding-Period Return (HPR)
Rate of return over given investment period
PS PB Div
HPR
PB
where
PS Sale Price
PB Buy Price
Div Cash Dividend
2
5.1 Rates of Return: Example
What is the HPR
Chapter
1
Investments:
BackgroundandIssues
1.1 Real versus Financial Assets
Financial Assets:
Productive
Capacity
Property,
plants and
equipment,
human
capital, etc.
Claims on Real Assets or
Real Asset Income
Examples?
Q: The largest asset for a
typical h