Name: _
Student ID: _
Exam 2 Chapters 4-6.
Fall 2014
Finance 6360
Professor Cooper
The exam has a total of 100 points.
ANSWERS
1. Assume the 6360 class portfolio results are:
Class mean return = 8.86
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Student ID: _
Exam 1
Fall 2014
Finance 6360
Professor Cooper
The exam has a total of 130 points.
ANSWERS
1) Assume a US Government Treasury bill has 111 days until it matures, and there are
36
First Three Letters
of Last Name
Name:
Hmk-6B
#1 A 5-year 6% annual coupon bond yields 5%. Compute the Macaulay duration of the bond. Do this by
filling in the following table.
(1)
Time until
Payment
Module 6A Bonds II Duration and Practical Applications
What you will learn:
The modified duration of a bond is equal to the percentage change in the bonds value divided by
the change in the interest r
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of Last Name
Name:
Hmk-8B
#1 The margin requirements are : Initial 50/Maintenance 40. Ignore interest.
ABC shares trade at $80. You buy 300 shares for $80 per share in your margin
Module 8 Limit-Order Book, Margin, and Shorting
What you will learn:
Stock market trading is organized into limit-order books. Limit orders provide liquidity and depth to
the market, while market orde
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of Last Name
Name:
Hmk-9B
#1 The market consensus is that Analog Electronic Corporation has an ROE = 9% and a beta of
1.25. It plans to maintain indefinitely its traditional plowb
First Three Letters
of Last Name
Name: SOLUTION Hmk-9B
#1 The market consensus is that Analog Electronic Corporation has an ROE = 9% and a beta of
1.25. It plans to maintain indefinitely its tradition
Module 9A Discounted Free Cash Flow Valuation of Stocks
What you will learn:
The fundamental value of a stock is equal to the present value of future cash flows. We can define
the cash flow (the numer
Name:
Hmk-10A
Please research the following topics prior to coming to class.
#1 Define the following terms and provide examples:
Open-end fund
NAV
Closed-end fund
12-b fee, expense ratio
Balanced Fun
Name:
#1
Hmk-11B
Options basics. Figure out the payoff and the profit per share in A-C:
A. You sell a 46 put for 4. Stock ends at $47.
Payoff=0. Profit=4.00.
B. You sell a 55 put for 4. Stock ends at
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of Last Name
#1
Name:
Hmk-11B
Options basics. Figure out the payoff and the profit per share in A-C:
A. You sell a 46 put for 4. Stock ends at $47.
Payoff=. Profit=.
B. You sell a
Module 11A Options I Terminology, Payoffs
What you will learn:
Options have their own specific terminology largely borrowed from insurance: Call/Put,
European/American, intrinsic value, in/at/out-of-t
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of Last Name
Module 12A Options II Binomial Option Pricing
What you will learn:
Insurance products are written on unhedgeable risks. Options are written on prices of securities tha
First Three Letters
of Last Name
Name:
Hmk-6B
#1 A 5-year 6% annual coupon bond yields 5%. Compute the Macaulay duration of the bond. Do this by
filling in the following table.
(1)
Time until
Payment
Name:
Hmk-6C
4 A bond currently sells for $1,050, which gives it a yield to maturity of 6%. Suppose that if the
. yield increases by 25 basis points, the price of the bond falls to $1,025. What is th
Module 5A Bonds I Price and Yield Calculations
What you will learn:
Bonds are credit instruments with a fixed repayment schedule (coupon and principal) payment . The
interest rates (yields) on and the
Module 1A Measuring Stock Returns
What you will learn:
Sources of stock returns: capital gains and dividends
Definitions of arithmetic, geometric and continuous returns
Calculations of means and stand
Name:
Hmk-1C
5. Suppose your expectations regarding the stock market are as follows:
Use Equations 5.65.8 to compute the mean and standard deviation of the HPR on stocks.
6. The stock of Business Adv
18. What is the relationship of the portfolio standard deviation to the weighted average of the
standard deviations of the component assets?
19. A project has a .7 chance of doubling your investment i
Module 2A Diversification: Combining risky and riskless assets into portfolios
What you will learn:
The reward-to-risk tradeoff (Capital Allocation Line) of risky-risky combinations
The reward-to-risk
First Three Letters
of Last Name
Name:
Hmk-2B
#1 You consider two stocks: A and B. You form portfolios composed of A and B with varying weights.
Expected Return (mean)
Standard Deviation
Correlation
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of Last Name
Name:
Hmk-3B
#1 The risk-free rate rF is 4%. The market risk premium (E[rM]-rF) is 6%. According to the CAPM,
the Expected Return
on Stock
A
B
with the beta of
is
1.2
Module 3A CAPM: Expected equity returns depend only on systematic risk
What you will learn:
That in CAPM, only systematic risk is priced, i.e. produces return to investors and is the equity cost
capit
Name:
Hmk-3C
4. What must be the beta of a portfolio with E(rP) = 20%, if rf = 5% and E(rM) = 15%?
5. The market price of a security is $40. Its expected rate of return is 13%. The risk-free rate is
Name:
Hmk-4C
28. Suppose two factors are identified for the U.S. economy: the growth rate of industrial
production, IP, and the inflation rate, IR. IP is expected to be 4% and IR 6%. A stock with a
b
Comment on 4A (since we did not finish the discussion):
In class we argued:
#2. One-factor APT. The risk-free rate is 8%. Here is the info on two stocks.
Stock Price Div1 g
Expected Return
Beta
X
$35
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of Last Name
Name:
Hmk-4B
#1. Consider a three-factor model.
You are in charge of a $100 million Centurion Super Select Fund. You are considering investing all your money into a
p