Chapter 10 Arbitrage Pricing Theory and Multifactor Models of Risk and Return
Multiple Choice Questions 1. _ a relationship between expected return and risk. A) APT stipulates B) CAPM stipulates C) Both CAPM and APT stipulate D) Neither CAPM nor APT stipu
Multiple Choice Questions 1. Trading activity by mutual funds just prior to quarterly reporting dates is known as A) insider trading. B) program trading. C) passive security selection. D) window dressing. E) none of the above. Answer: D Difficulty: Modera
Chapter 8 Index Models
Multiple Choice Questions 1. As diversification increases, the total variance of a portfolio approaches _. A) 0 B) 1 C) the variance of the market portfolio D) infinity E) none of the above Answer: C Difficulty: Easy Rationale: As m
Managing Bond Portfolios
As interest rates fluctuate, bond holders experience capital losses and gains
This makes fixed-income investments risky (even if coupon and principal payments are
guaranteed)
All securities must offer investors fair expected rate
INDUSTRIAL STOCK PORTFOLIO AND MINING STOCK PORTFOLIO
The industrial stock portfolio consists of the stocks ASB, CLO, FGE, LCM and TOX.
The mining stock portfolio consists of the stocks AOH, BHP, DTM, STB and XAM.
All stocks are equally weighted within th
Lecture 6
The CAPM
Quick recap
Last lecture we saw how the separation
theorem implies all investors hold the same
optimal risky portfolio, P*
In equilibrium, the demand for risky assets
must equal the supply of risky assets
Therefore the optimal risky
Lecture 7
Portfolio management in practice
Applying the CAPM
Recall the CAPM from the last lecture:
E (ri ) = rf + i [E (rM ) rf ]
In order to apply the CAPM we need to
measure the returns of a risk-free asset and
the market portfolio
In practice there
10. An investor purchases a stock for $38 and a put for $0.50 with a strike price of $35. The investor
sells a call for $0.50 with a strike price of $40. What is the maximum profit and loss for this position?
Draw the profit and loss diagram for this stra
FINS 2624 Tutorial
Week 12 Revision
Week 7 Markowitz Portfolio
Theory
Utility Formula:
What does A represent?
For a typical investor, what type of value should A have?
Calculating expected return and covariance for a portfolio
Weighted average return
FINS 2624 Tutorial
Week 6 Optimal Portfolios
Introduction of Risk free
asset
Establishing the Combined Portfolio:
Choosing the Optimal Risky
Portfolio
We know that the most efficient
portfolios lie on the efficient frontier
Will choose portfolio that sat
FINS 2624 Tutorial
Week 7
The Efficient Market Hypothesis
Behavioural Finance
The Efficient Market Hypothesis
Asset prices respond to relevant
information instantaneously and
accurately
Abnormal profit cannot be earned from
trading based on information
FINS 2624 Tutorial
Week 10 Single Index Model and APT
Single Index Model (SIM)
Interpretation of the SIM
SIM proposes that the EXCESS RETURN
of a stock is composed of:
Constant component stock alpha ()
Irrespective of the performance of the market
Vari
FINS 2624 Tutorial
Week 7 The CAPM
Capital Asset Pricing Model
Since the market portfolio is the most
optimal portfolio, it cannot be improved by
changing the portfolio weights
No individual asset can have a larger
contribution to risk /return ratio of ma
(1) According to the CAPM, risks that could potentially be diversified do not affect required returns.
(2) The required return of an asset is the expected return that asset will have in equilibrium.
(3) For a positive risk aversion parameter, A, we can al
Lecture 4
Markowitz portfolio theory
Preferences
If an individual prefers an apple to a banana, we
say that she has a preference for the apple over
the banana
As economists, we are interested in satisfying as
many such preferences as possible
To be abl
Term Structure of Interest Rates
Term structure of interest rates: structure of interest rates for discounting
cash flows of different maturities
Yield curve: plot of yield to maturity as a function of time to maturity
o Allows investors to gauge expectat
Chapter 7:
Systematic risk:
Also known as: non-diversifiable risk/market risk
Risk that affects all firms and cannot be eliminated by
diversification
Non-systematic risk
Also known as: diversifiable risk/unique risk
Risk that is firm-specific and can be e
Final Exam Preparation Questions: Solutions
Lecture 7: Portfolio Management in Practice
Multiple Choice Questions
1. Answer: C
Rationale: As more and more securities are added to the portfolio; unsystematic risk decreases
and most of the remaining risk is
Final Exam Preparation Questions
Lecture 7: Portfolio Management in Practice
Multiple Choice Questions
1. As diversification increases, the total variance of a portfolio approaches _.
A. 0
B. 1
C. the variance of the market portfolio
D. infinity
E. -1
2.
Australian School of Business
School of Banking and Finance
FINS2624
PORTFOLIO MANAGEMENT
COURSE OUTLINE
SEMESTER 1, 2011
TABLE OF CONTENTS
1. STAFF CONTACT DETAILS
1
2. COURSE DETAILS
1
2.1Teaching Times and Locations
2.2Units of Credit
2.3Summary of Cou
Australian School of Business
School of Banking and Finance
FINS2624
PORTFOLIO MANAGEMENT
COURSE OUTLINE
SEMESTER 1, 2011
TABLE OF CONTENTS
1. STAFF CONTACT DETAILS
1
2. COURSE DETAILS
1
2.1Teaching Times and Locations
2.2Units of Credit
2.3Summary of Cou
S13: Payoff and Profit/Loss Diagrams Background Reading
1
Payoff and Profit/Loss Diagrams
Objectives:
describe and explain some commonly used option terminologies,
discuss a few option related strategies including the protective put, covered call, and
b
FINS 2624 Tutorial
Week 6 Optimal Portfolios
Introduction of Risk free asset
Establishing the Combined Portfolio:
Choosing the Optimal Risky Portfolio
We know that the most efficient portfolios lie on
the efficient frontier
Will choose portfolio that sat
FIN82624 PORTFOLIO MANAGEMENT, Session 1, 2017
Time Place PASS Leader
11:00 - 12:00 midday QUAD G054
12:00 - 1:00 PM K-F23-301 Mat 301
Raymond LU
Michael WANG
QUAD 6054
Morven Brown G5
Wednesday Raymond LU
Thursday 4:00 5:00 PM Michael W