Econ331
Financial Economics
University of Wollongong
Spring 2016
Lecture 12
Review Lecture
Topics to be reviewed
Portfolio Theory
Capital Asset Pricing Model
Arbitrage Pricing Theory
Efficient Market Hypothesis
Mean-Variance Portfolio Choice
Mean-Variance

Econ 331 Financial Economics
Spring 2016
Tutorial 5 answers
Question 1
Consider the problem of portfolio choice with one risky asset (A) and one riskless asset (RF). Recall
that in class we have shown that the expected return and standard deviation of the

Econ100 Economic Essentials for Business
Tutorial 10
Chapter 17
2.4.
Identify each of the following as (i) part of an expansionary fiscal policy, (ii) part of a contractionary fiscal policy or (iii)
not part of fiscal policy.
a.
The company income tax rat

Econ 331 Financial Economics
Spring 2016
Tutorial 1 Answers
FNZ Chapter 2, questions 3, 4, 7 and 10 (pp.29-30)
FNZ Chapter 3, questions 5 and 9 (pp. 48-49)
Question 2.3
a. A utility function is used to conveniently express the preferences. So long as the

Econ 331 Financial Economics
Spring 2016
Assignment 1 solutions
Question 1
Suppose you can invest your money in two assets: A and B. Asset A is risky and its rates of return
depend on the state of the economy as follows:
State
Boom
Moderate Growth
Recessi

Econ 331 Financial Economics
Spring 2016
Assignment 2 answer
Question 1 (CAPM)
Consider the following data representing security analysts estimates of the expected return on two
stocks, A and D, as well as the market expected return in each of the two pos

Econ 331 Financial Economics
Spring 2016
Tutorial 4
Questions to be discussed in this tutorial:
Question 1
Alice owns a house with a market price of 10 million dollars. She is an expected utility maximizer and
her utility function is u( x) ln( x) . During

Econ 331 Financial Economics
Spring 2016
Assignment 1
Please submit your answers in your assigned tutorial in Week 6. The last tutorial in Week 6 is on
Friday, September 2 at 10:30 in 3-122. If your assigned tutorial is on Thursday, you can, if you prefer

Econ 331 Financial Economics
Spring 2016
Tutorial 8 solutions
Question 1
Suppose an economy has one risk-free asset with the return rRF and two risky assets with expected
returns E ( r1 ) and E ( r2 ) , and standard deviations 1 and 2 . Assume that the re

Econ 331 Financial Economics
Spring 2016
Tutorial 7 solutions
Question 1
Suppose that the risk-free rate of return is 6% and the expected rate of return on the market is 16%.
(a) A stock has an expected rate of return of 4%. What is its beta?
rj rRF j (rm

Econ 331 Financial Economics
Spring 2016
Tutorial 5
Question 1
Consider the problem of portfolio choice with one risky asset (A) and one riskless asset (RF). Recall
that in class we have shown that the expected return and standard deviation of the portfol

Econ 331 Financial Economics
Spring 2016
Tutorial 8
Question 1
Suppose an economy has one risk-free asset with the return rRF and two risky assets with expected
returns E ( r1 ) and E ( r2 ) , and standard deviations 1 and 2 . Assume that the returns on t

Econ 331 Financial Economics
Spring 2016
Tutorial 9 answers
Question 1
(a) This portfolio is not well diversified because the weight of stock 1 does not decline as n increases.
Regardless of how much diversification there is in the rest of the portfolio,

Econ 331 Financial Economics
Spring 2016
Tutorial 7
Question 1
Suppose that the risk-free rate of return is 6% and the expected rate of return on the market is 16%.
(a) A stock has an expected rate of return of 4%. What is its beta?
(b) A share of stock s

Econ 331 Financial Economics
Spring 2016
Tutorial 9
Question 1
(a) Consider a portfolio which invests in a very large number of shares. One-half on the portfolio is
invested in stock 1 and the rest of the portfolio is equally divided among the other n-1 s

Econ 331 Financial Economics
Spring 2016
Assignment 2
Please submit your answers in your assigned tutorial in Week 13. The last tutorial in Week 13 is on
Friday, October 28 at 10:30 in 3-122. If your assigned tutorial is on Thursday, you can, if you prefe