Homework #1
Solution
Michigan State University
Eli Broad College of Business
FI 312 and FI 321
Do the following problems from Fundamentals of Investments (7th edition), by Jordan, Miller and Dolvin.
C
Homework #4
Michigan State University
Eli Broad College of Business
FI 312 and FI 321
Do the following problems from Fundamentals of Investments (7th edition), by Jordan, Miller and Dolvin.
Chapter 7
THEORY OF INVESTMENTS /Ivkovich
Problem Set 3
Due: 02/13/2018
Instructions: Each group will turn in one solution to the problem set. Recall that late submission
will not be allowed: problem sets must
THEORY OF INVESTMENTS /Ivkovich
Problem Set 4
Due: 02/20/2018
Instructions: Each group will turn in one solution to the problem set. Recall that late submission
will not be allowed: problem sets must
THEORY OF INVESTMENTS/Ivkovich
Due: 01/30/2018
Problem Set 2
Instructions: Each group will turn in one solution to the problem set. Recall that late submission
will not be allowed: problem sets must b
TEST 1 REVIEW
Conceptual questions:
Diversification
Risk aversion
Mean-variance properties
MVP, optimal P
Sharpe ratio
2 risky assets; + risk-free asset; + more assets
No short sales
Different
Characterizing Asset Returns
Simple holding period return (HPR) r:
1 + rt +1
Pt +1 + Dt +1
=
Pt
Pt asset price at time t
Dt+1 dividend payments during the period (t,t+1]
(assumed to be paid at time
Why do we invest?
Optimize consumption over time!
A very simple setting:
Two periods Young (time t) and Old (time t+1)
Wt initial endowment
It investment at time t (Wt It)
Ct consumption at time t
The CAPM, Part III
Measurement Issues:
Statistical
(1) Noise
o
o
o
Measurement errors
More serious for individuals assets
is (normally) unbiased, but measures with error:
= true + error
(2) Regres
The Capital Asset Pricing Model (CAPM)
(Sharpe, Lintner, Mossin)
Partial equilibrium: Expected returns, covariances given
Two central predictions of the CAPM:
Under certain assumptions (see below),
The CAPM, Part II
Sharpes Single Index Model
Computational aspects of Markowitz optimization:
n assets O(n2) estimates for and
Sharpe:
Need not estimate the entire
Suffices to estimate iM for all
Arbitrage: Essential Issues
Financial theory often assumes the absence of arbitrage
opportunities (intuitively, any such opportunities that might
arise will be eliminated so quickly that we never eve
Department of Finance
Michigan State University
Zoran Ivkovich
Spring 2018
Finance FI 321: THEORY OF INVESTMENTS
Course Syllabus
Instructor:
Zoran Ivkovich
Email: [email protected]
Office: 341 Eppl
Multifactor Models
Introduction
Recall SML:
E(ri) = rf + i (E(rM) rf) = rf + i M
E(rM) rf = M risk premium / unit of market risk
This is a single-factor linear model
Considering multiple risk facto
Arbitrage Pricing Theory (APT)
Pioneered by Stephen Ross in the 1970s
(1976)
APT is based on the absence of arbitrage
Can view it as a generalization of the SML
There are different kinds of risk:
Chapter Three: Securities Markets
1. How Firms Issue Securities
Primary market: markets for new issues of securities. Obtain capital funding
The company is directly involved in the transaction; new se
FI 311
SPRING 2017
K. SCISLAW
CHAPTER 8 END OF TEXTBOOK CHAPTER PROBLEMS AND SOLUTIONS
SOLUTIONS
1. P0 = $31.20
P3 = $35.10
P15 = $56.19
2.
3.
4.
5.
6.
7.
8.
12.
15.
16.
R = .1001, or 10.01%
Capital g