Finance 30233, Fall 2010
M.J. Neeley School of Business, TCU
S. Mann
Self-quiz Monday, November 08, 2010
Name_
Examine the following information regarding options written on MMM stock. At the
time of the quotes below, MMM stock traded at $90.
Put
Market
S
Risk
Uncertainty about future outcomes
The greater the dispersion of possible outcomes, the
greater the risk
Most investors tend to be risk averse
All things being equal, investors prefer less risk to more
risk
Investors will increase risk-taking pos
Finance 30233
Fall 2010
S. Mann
Name_Solution_
Sample Problem 1. Solution
Show your work to receive full credit.
Assume the following:
Asset/portfolio
Expected return
Standard deviation
Riskless rate
5%
0
Risky portfolio A
10 %
20 %
Risky portfolio B
20 %
Finance 30233
Fall 2010
Associate Professor S. Mann
Name_Solution_
Sample Problem 2. Solution
Show your work to receive full credit.
Consider the following, and assume the CAPM holds.
Asset
beta
standard deviation
Riskless asset, yielding 3%
Delta Company
Finance 30233, Fall 2010
S. Mann
Name_Solution_
Sample problem 3: APT
1. Assume that there is one priced risk factor for assets (This assumption would be true
for the CAPM, as well as a single factor APT). Consider the following betas and
expected returns
Finance 30233 , Fall 2010
The Neeley School, TCU
S. Mann
Name_Solution_
Sample Problem Four. Solution
Show your work to receive full credit.
Assume the following:
Riskless borrowing & lending rate is 5%.
E[R]
Asset A
Asset B
Asset C
(std deviation)
10%
1
Finance 30233. Fall 2010
Neeley School of Business
Texas Christian University
S. Mann
Sample problems #5: Yields
Name_Solution_
1. Yield Curves.
You observe the following zero-coupon bond yields (all default-free).
a) Find in the price per $100 Face value
Finance 30233. Fall 2010
Neeley School of Business
Texas Christian University
S. Mann
Name_Solution_
Sample problems #6: forward rates , bond pricing: solution
For all parts, use the following information:
B(0,1)
= 0.95
B(0,2)
= 0.90
B(0,3)
= 0.86
B(0,4)
Finance 30233, Fall 2010
S. Mann
Name_solution_
Sample problem for final_01 solution.
The Bogus bank has the following market value asset/liability structure:
Assets
$10,000,000
Asset duration (modified)
8.0
Liabilities
9,000,000
Liability duration (modif
Finance 30233, Fall 2010
S. Mann
Name_Solution_
Sample problem for final #2
PLQ, Inc. stock is currently priced at $420 per share. It pays a $25 dividend to shareholders of
record in six months. Use the following discount rate information for 3,6, 9 and 1
Finance 30233, Fall 2010
S. Mann
Sample problem for final #3.
Name_Solution_
Structured Note. Assume that the current peso exchange rate is $1 to 10 pesos.
You are considering the purchase of a one-year note with the following redemption
value formula:
Re
Finance 30233, Fall 2010
S. Mann
Name_Solution_
Sample Problem for Final #4: Solution
Your firm has existing forward contracts with ESSO Oil to purchase 1 million barrels of oil for
delivery at the end of March, May, and July 2011 (total forward purchase
Finance 30233, Fall 2010
Advanced Investments
S. Mann
Name_Solution_
Sample problem for final: # 5.
Billy Hill manages a $100 million equity portfolio for Silverman Bags, Inc.
His equity portfolio has an average Beta of 1.50.
During the past year, returns
Finance 30233, Fall 2010
Advanced Investments, S. Mann
Sample problem for final: # 6.
Name_Solution_
Billy Hill manages a $100 million equity portfolio for Silverman Bags, Inc.
His equity portfolio has an average Beta of 1.50.
Billy also has maintained a
Finance 30233, Fall 2010
Advanced Investments
S. Mann
Name_Solution_
Sample problem for final: # 7: solution.
Christine Callaghan manages a $100 million bond portfolio for a pension fund. At the
beginning of the year, the modified duration of her portfoli
Time Value Formulas
Future Value (lump sum):
FVn = PV(1+r)n where PV is the current value
Present Value (lump sum):
PV = FVn/(1+r)n
Present Value for a series of payments (C1, C2, C3, etc):
PV
C1
C2
C3
CN
.
2
3
(1 r1 ) (1 r2 )
(1 r3 )
(1 rN ) N
Perpetu