Investment Alternatives
FIN 261
Lecture Notes Ch. 1, 2, 3
1
Investments
Investors perspective
Maximizing expected welfare
Return is good
Risk is bad
Ex ante risk-return trade-off
Portfolios
Asset classes
Securities
Decision Process
2
Investment Alternativ
261- tutorial 3
Bodie, Kane, and Marcus ( 2010)
Problem 1
Probability
Stock X
Stock Y
Bear
market
0.2
-20%
-15%
Normal
market
0.5
18%
20%
Bull
market
0.3
50%
10%
a.
What are the expected rates of return for
stocks X and Y?
b.
What are the standard deviati
261- tutorial 3
Bodie, Kane, and Marcus ( 2010)
Problem 1
Probability
Stock X
Stock Y
Bear
market
0.2
-20%
-15%
Normal
market
0.5
18%
20%
Bull
market
0.3
50%
10%
What are the expected rates of return for
stocks X and Y?
Answer
a.
What are the standard dev
Version 1
FINANCE 261
THE UNIVERSITY OF AUCKLAND
Department of Accounting and Finance
FINANCE 261 Introduction to Investments
MID-SEMESTER TEST
Semester 1 - 2014
INSTRUCTIONS
Time allowed: 60 minutes (includes reading time)
Total Marks: 20
a. Answer ALL q
Version 1
FINANCE 261
THE UNIVERSITY OF AUCKLAND
Department of Accounting and Finance
FINANCE 261 Introduction to Investments
MID-SEMESTER TEST
Semester 2 - 2014
INSTRUCTIONS
Time allowed: 60 minutes (includes reading time)
Total Marks: 20
a. Answer ALL q
Version 1
FINANCE 261
THE UNIVERSITY OF AUCKLAND
_
MID-SEMESTER TEST
Semester 2 - 2015
_
FINANCE 261
Introduction to Investments
INSTRUCTIONS
Time allowed: 60 minutes (includes reading time)
Total Marks: 20
a. Answer ALL questions. There are 20 questions
Finance 261 Tutorial
Week 2
Consider the following return distributions for Stock A.
Economic State
Deep Recession
Mild Recession
Mild Expansion
Boom
Probability
0.2
0.3
0.3
0.2
Return on Stock A
-20%
0%
20%
30%
1. What is the expected return on Stock A?
Investment Companies
FIN 261
Lecture Notes Ch. 4
Investment Company
Financial intermediaries pooling assets of
individual investors
Record keeping and administration
Diversification and divisibility
Professional management
Lower transaction costs
NAV
Asse
Version 1
FINANCE 261
THE UNIVERSITY OF AUCKLAND
Department of Accounting and Finance
FINANCE 261 Introduction to Investments
MID-SEMESTER TEST
Semester 1 - 2015
INSTRUCTIONS
Time allowed: 60 minutes (includes reading time)
Total Marks: 20
a. Answer ALL q
Investment Alternatives
FIN 261
Lecture Notes Ch. 1, 2
1
Investments
Nature of Investment
Reduce current consumption for greater future consumption
Investors perspective
Maximizing expected welfare
Return is good
Risk is bad
Ex ante risk-return trade-o
Math and Stats Review
FIN 261
1
Random Variable
Variable whose value is subject to
variations due to chance
Examples:
Return from a risky investment
Payoff from a game in which you
choose one case out of two
containing either nothing or 1 million
dollars
Security Markets
FIN 261
Lecture Notes Ch. 3
Financial Markets
Primary market
New securities are issued
Issuer receives proceeds from sale
Public offerings
Registered with SEC
Sale made to investing public
Private offerings
Not registered
Sold only to
Index Model and APT
FIN 261
Lecture Notes Ch. 7
1
Single Index (Factor) Model
Index Model: a model of security returns
using an index such as the S&P 500 to
represent common or systematic risk
(factor)
Each stock js return fluctuates with the single
fac
Finance 261 Tutorial
Week 2
1. Assuming an investor is in the 15% tax bracket, what taxable equivalent must be
earned on a security to equal a tax exempt municipal bond yield of 5.5%?
2. (2013SC Test) A 90-day $1000 par Treasury bill was just issued at $9
Finance 261 Tutorial
Week 6
1. You are given the following return probability distribution for Stock X and Y:
Probability
Stock X
Stock Y
Bear market
0.2
-20%
-15%
Normal market
0.5
18%
20%
a. What are the expected rates of return for stocks X and Y?
R
E(
THE UNIVERSITY OF AUCKLAND
Department of Accounting and Finance
FINANCE 261 Introduction to Investments
Assignment 2
Semester 2 2016
Due Date: Friday, October 21st, 4pm
0
1.
Suppose that a two-factor model, where the factors are the market return (Factor
Finance 261 Tutorial
Week 6
1. You are given the following return probability distribution for Stock X and Y:
Probability
Stock X
Stock Y
Bear market
0.2
-20%
-15%
Normal market
0.5
18%
20%
Bull market
0.3
50%
10%
a. What are the expected rates of return
Finance 261 Tutorial
Week 2
Consider the following return distributions for Stock A.
Economic State
Deep Recession
Mild Recession
Mild Expansion
Boom
Probability
0.2
0.3
0.3
0.2
Return on Stock A
-20%
0%
20%
30%
1. What is the expected return on Stock A?
Finance 261 Tutorial
Week 5
1.
Assume you purchased a share in Company Z for $5.40 on 1 January 2007 intending
to hold it for 180 days. A dividend of 50 cents per share was paid 10 days later. At the
end of your holding period you sold the share for $6.40
Finance 261 Tutorial
Week 4
1. Assume an initial margin requirement of 50% and a maintenance
margin of 30%. An investor buys 100 shares of stock on margin at
$60 per share. The price of the stock subsequently drops to $50.
a. What is the actual margin at
Returns and Risks
FIN 261
Lecture Notes Ch. 5
1
Two Components of Return
Yield
Periodic cash flow
Interest
Dividend
Capital gain / loss
Appreciation / depreciation in the price
Holding Period Return = Yield + Price Change
Yield Price change CFt (PE PB )
Capital Asset Pricing
Model
FIN 261
Lecture Notes Ch. 6, 7
1
Risk-Return Plane
Risk and return are the only characteristics of the
portfolios that matter
Risk-return combinations on a plane
Two asset example:
Stock Portfolio:
E[R] = 10%
SD = 25%
Bond Port
Version 1
FINANCE 261
THE UNIVERSITY OF AUCKLAND
_
MID-SEMESTER TEST
Semester 1 - 2016
_
FINANCE 261
Introduction to Investments
INSTRUCTIONS
Time allowed: 60 minutes (includes reading time)
Total Marks: 20
a. Answer ALL questions. There are 20 questions
261- TUTORIAL 1
Jones ( 2010)
Problem 2- 1:
Assuming an investor is in the 15% tax bracket, what
taxable equivalent must be earned on a security to
equal a municipal bond yield of 5.5%?
CFA
Problem
(from
Marcus
et
al.,
Investments, 2009)
Chapter 2- Proble
THE UNIVERSITY OF AUCKLAND
Department of Accounting and Finance
FINANCE 261 Introduction to Investments
Assignment 1
Semester 1 2013
DUE DATE: Friday 19 April 4pm
Note: It is desirable, but not essential, for assignment answers to be typed. If handwritten
The University of Auckland Business School
Course Outline 2013 Semester 1
FINANCE 261 Introduction to Investments
1. Course Description
This course examines markets for shares, fixed income securities, options and futures;
methods of valuing shares, fixed
Security Markets
FIN 261
Lecture Notes Ch. 4, 5
Financial Markets
Role
Help firms and governments raise cash by selling claims
against themselves
Provide a place where investors can act on their beliefs
Help allocate cash to where it is most productive
He
Returns and Risks
FIN 261
Lecture Notes Ch. 6
1
Two Components of Return
Yield
Periodic cash flow
Interest
Dividend
Capital gain / loss
Appreciation / depreciation in the price
Total dollar return = Yieldchange ChangeE PB )
Yield + Price + Price CFt + (P
Portfolio Theory
FIN 261
Lecture Notes Ch. 7
1
Return as a Random
Variable variables. Consider
Returns are random
Mean or expected value: central tendency
Variance or standard deviation: dispersion
If a distribution is normal, it is characterized by mea