Chapter 5
4.
E(r) = [0.3 44%] + [0.4 14%] + [0.3 (16%)] = 14%
2 = [0.3 (44% 14%)2] +[0 .4 (14% 14%)2] + [0.3 (16% 14%)2] =
0.0540
= 23.24%
The mean is unchanged, but the standard deviation has increased.
5.
a.
The holding period returns for the three sce
Finance 431 Chapter 3 Homework Solutions
1a. Loss = (Price When Shorted Market Price When Short is Covered) X # of shares
= (48.43 - 750) x 100 = -70,157 = Loss of $70,157
1b. Loss = (Price When Shorted - Stop Buy Price) X # of shares
= (48.43 - 100) X 10
Answers to Suggested Problems
Chapter 2:
1.
Taxable equivalent yield = 0.675 / (1- 0.35) = 0.1038 or 10.38%.
3.
a. You would have to pay the asked price of:
118:31 = 118.96875% of par = $1,189.6875
b.
C.
4.
The coupon rate is 11.75%, implying coupon payme
CHAPTER 15: OPTIONS MARKETS
1.
c is false. This is the description of the payoff to a put, not a call.
2.
c is the only correct statement.
3.
Each contract is for 100 shares: $7.25 100 = $725
4.
Cost
Call option, X = 85
Put option, X = 85
Call option, X =
Finance 431 Homework Solutions Chapter 21
Do all calculations using 9 decimal places, retain the 9 decimal places throughout the
calculations, then when you report answers round to 2 decimal places. Examples: If the answer
is in years; i.e. 9.55769321 rep
Finance 431 Homework Chapter 3
Do all calculations using 9 decimal places, retain the 9 decimal places throughout the
calculations, then when you report answers round to 2 decimal places. Examples: If the
answer is in years; i.e. 9.55769321 report 9.56. I
Finance 431 Homework Chapter 21
Do all calculations using 9 decimal places, retain the 9 decimal places throughout the
calculations, then when you report answers round to 2 decimal places. Examples: If the answer
is in years; i.e. 9.55769321 report 9.56.
Finance 431
Exam II
Spring, 2014
M. Stiner
HONOR PLEDGE:
I pledge to support the Honor System of Old Dominion University. I will refrain from any form
of academic dishonesty or deception, such as cheating or plagiarism. I am aware that as a
member of the
Finance 431 Homework Chapter 2
Do all calculations using 9 decimal places, retain the 9 decimal places throughout the
calculations, then when you report answers round to 2 decimal places. Examples: If the
answer is in years; i.e. 9.55769321 report 9.56. I
Answers to Suggested Problems
Chapter 3:
12.
If the stop-buy order can be filled at $210, the maximum possible loss per
share is $10. If the price of IBM shares go above $210, then the stop-buy
order would be executed, limiting the losses from the short s
Note: This is prepared for your convenience only. Its NOT meant to cover everything.
You are responsible for understanding these formulas and also for memorizing formulas
not listed here.
Formulas
N
Portfolio Beta: portfolio wi i , where wi denotes the in
FIN 431 Investments
Quiz 2
Name: _
ID# (last 4 digits) _
Instruction: Choose the best answer. 2 points per question. Mark your answer clearly.
For questions 1 to 5, use the following information.
Mike opens a brokerage account and purchases 500 shares of
Chapter 4:
10.
Open-end funds are obligated to redeem investor's shares for net asset value, and thus must keep
cash or cash-equivalent securities on hand in order to meet potential redemptions. Closed-end funds
do not need the cash reserves because they
14. P = 2.10/0.11 = 19.09
17. a.
b.
D1
k g
$2
$2
$50
0.12 12%
g 0.16
0.16 g
$50
P0
P0
D1
$2
$18.18
k g 0.16 0.05
The price falls in response to the more pessimistic forecast of dividend growth.
The forecast for current earnings, however, is unchanged
Finance 431
Study Hints
Suggestions for Achieving Success in this Class
1.
Read and outline the assigned chapter BEFORE the lecture. Focus on learning vocabulary words with
which you are unfamiliar.
2. Print out the lecture slides before class. Be sure to
Chapter 8
11. c.
This is a predictable pattern in returns, which should not occur if the stock market is
weakly efficient.
12. c.
This is a classic filter rule, which would appear to contradict the weak form of the
efficient market hypothesis.
17.
Consist
Chapter 7
a.
False. = 0 implies E(r) = rf , not zero.
b.
False. Investors require a risk premium for bearing systematic (i.e., undiversifiable or market)
risk.
c.
3.
False. You should invest 0.75 of your portfolio in the market portfolio, and the remainde
Chapter 4:
10.
Open-end funds are obligated to redeem investor's shares for net asset value, and thus must keep
cash or cash-equivalent securities on hand in order to meet potential redemptions. Closed-end funds
do not need the cash reserves because they
Chapter 13
14. P = 2.10/0.11 = 19.09
17. a.
P0
D1
k g
$50
b.
P0
$2
$2
0.12 12%
g 0.16
0.16 g
$50
D1
$2
$18.18
k g 0.16 0.05
The price falls in response to the more pessimistic forecast of dividend growth.
The forecast for current earnings, however, i
A Note on the Calculation of M 2 and T 2 Metrics
for Portfolio Performance Evaluation
1
Basic Idea
Imagine that we want to compare the performance of any given portfolio with
a benchmark index (the market). However, we cannot compare the returns
directly
A Note on Minimum Variance Portfolio
Minimum Variance Portfolio Weights Formula:
Two-asset Case
Consider a portfolio consists of only two assets, say stock and bond. We use the
following notation.
wS : portfolio weight in stock
wB : portfolio weight in
Note: This is prepared for your convenience only. Its NOT meant to cover everything.
You are responsible for understanding these formulas and also for memorizing formulas
not listed here.
Formulas
N
Portfolio Beta: portfolio wi i , where wi denotes the in
Chapter 18
6.
We need to distinguish between timing and selection abilities. The intercept of the
scatter diagram is a measure of stock selection ability. If the manager tends to have a
positive excess return even when the markets performance is merely ne
Chapter 4:
10.
Open-end funds are obligated to redeem investor's shares for net asset value, and thus must keep
cash or cash-equivalent securities on hand in order to meet potential redemptions. Closed-end funds
do not need the cash reserves because they