Tutorial 4
Problem 1:
Consider the following information:
E(RS&P500)=13%, SP 500=25 , RF=5%. Suppose that the borrowing
rate that your client faces is 9%.
a) Draw a diagram of your clients CML, accounting for the
higher borrowing rate. Superimpose on it t

TUTORIAL 7
Problem 1
A 9-year bond has a yield of 10% and duration of 7.194 years. If
the market yield changes by 50 basis points, what is the %
change in the bonds price using the approximation with
modified duration?
Problem 2
Find the duration of a 6%

Tutorial 9
Problem 1
Suppose you collect the following data for a certain stock:
Stock price
Call price (1-year expiration, X=$105)
Put price (1-year expiration, X=$105)
Risk-free interest rate
$110
$17
$5
5% per year
Is the parity relation violated? If y

TUTORIAL 8
Problem 1
Under the expectations hypothesis, if the yield curve is upward-sloping, the
market must expect an increase in short-term interest rates.
True/false/uncertain? Why?
Answer:
True. Under the expectations hypothesis, there are no risk pr

TUTORIAL 6
Problem 1
Consider the following data for a one-factor economy. All portfolios are welldiversified.
Portfolio
Expected Return
Factor Loading
A
10%
1.0
F
4
0
a. What must be the risk-free rate? Explain.
b. Suppose another portfolio E is well div

Workshop 10
Problem 1.
If you believe in the _ form of the EMH, you believe that stock prices reflect all
relevant information including historical stock prices and current public information about
the firm, but not information that is available only to i

Workshop 9
Problem 1
Suppose you collect the following data for a certain stock:
Stock price
Call price (1-year expiration, X=$105)
Put price (1-year expiration, X=$105)
Risk-free interest rate
$110
$17
$5
5% per year
Is the parity relation violated? If y

261-TUTORIAL 2
Final exam (1st semester 2005)
ABC Corporations monthly share prices are listed below
together with a description of events occurring during the
month which may affect the market price of the companys
shares. The closing market price at the

TUTORIAL 5
Question 1
There are two risky assets, S and B whose expected returns are
10% and 5%, respectively and standard deviations are 19% and
8%, respectively. In addition, the correlation coefficient
between S and B is 0.2 and the risk-free rate is 3

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?
Answer
R
E( X)=[ 0.2 (20 ) ] + [ 0

TUTORIAL 5
Question 1
There are two risky assets, S and B whose expected returns are
10% and 5%, respectively and standard deviations are 19% and
8%, respectively. In addition, the correlation coefficient
between S and B is 0.2 and the risk-free rate is 3

TUTORIAL 8
Problem 1
Under the expectations hypothesis, if the yield curve is upward-sloping, the
market must expect an increase in short-term interest rates.
True/false/uncertain? Why?
Problem 2
Under the liquidity preference theory, if inflation is expe

Finance 261 Workshop 1
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. The coupon rate on tax-exempt bond is 5.6%, and the rate on a
taxable bon

TUTORIAL 6
Problem 1
Consider the following data for a one-factor economy. All portfolios are welldiversified.
Portfolio
Expected Return
Factor Loading
A
10%
1.0
F
4
0
a. What must be the risk-free rate? Explain.
Since the beta for Portfolio F is zero, th

TUTORIAL 7
Problem 1
A 9-year bond has a yield of 10% and duration of 7.194 years. If
the market yield changes by 50 basis points, what is the %
change in the bonds price using the approximation with
modified duration?
Answer:
The percentage change in the

261-TUTORIAL 2
Final exam (1st semester 2005)
ABC Corporations monthly share prices are listed below
together with a description of events occurring during the
month which may affect the market price of the companys
shares. The closing market price at the

Workshop 10
Problem 1.
If you believe in the _ form of the EMH, you believe that stock prices reflect all
relevant information including historical stock prices and current public information about
the firm, but not information that is available only to i

Finance 261 Workshop 1
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%?
Taxable equivalent yield ( TEY )=
TEY =
tax exempt municipal yield
1marginal

Tutorial 4
Problem 1:
Consider the following information:
E(RS&P500)=13%, SP 500=25 , RF=5%. Suppose that the borrowing
rate that your client faces is 9%.
a) Draw a diagram of your clients CML, accounting for the
higher borrowing rate. Superimpose on it t

FINANCE 261 Workshop 3
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 deviations of stocks X and Y?
c.