Simulation Project Group 4
George Lam A0113860M
Ong Wei Jee A0111089L
Yong Kang
A0111230J
Joshua Che A0111379H
Quang Nguyen A0101878B
Minh Nguyen A0116660L
Project proposal:
Statement: Checkout system design for Clementi Mall NTUC Supermarket.
Motivation:

EC3333 Financial Economics I
Topic 09
Q1: What's the put-call parity theorem? Consider a one-year maturity call option and a
one-year put option on the same stock, both with striking price $45. If the risk-free rate
is 4%, the stock price is $48, and the

Lecture Notes 1
Risk Aversion and Capital
Allocation to Risky Assets
Return and Risk
Rates of Return: Single Period
P
1 P0 D1
HPR
P0
HPR = Holding Period Return
P0 = Beginning price
P1 = Ending price
D1 = Dividend during period one
Rates of Return: Singl

Lecture Note 06
The Term Structure
of Interest Rates
Overview of Term Structure
The yield curve is a graph that displays the
relationship between yield and maturity
Information on expected future short term rates
can be implied from the yield curve
Majo

EC3333 Financial Economics I
Topic 4
Q1: Consider the single-factor APT model. Consider two well diversi ed portfolios C and
D have expected returns of 10% and 15%, respectively. The risk-free rate of return is 5%.
Portfolio D has a beta of 0.2. If arbitr

EC3333 Financial Economics I
Topic 2
Q1. (5 marks) There are two assets that are available for an investor to construct his
portfolio: a risky asset B with an expected return of 6-percent and a standard deviation
of 4-percent, and a risk-free T-bill that

EC3333 Financial Economics I
Topic 3
Q1: There are 3 securities. Security 1 gives a risk-free rate of r1 = 2%. The rate of return
of Security 2 has an expectation of Er2 = 3% and standard deviation 2 = 10%. The rate
of return of Security 3 has an expectat

Lecture Notes 07
Bond Duration and risk
management
Bond Price Volatility: Interest Rate Risk
T
Ct
Par Value
Price
t
T
(1 y )
t 1 (1 y )
y :YTM
tCt
d Price
T Par Value
cfw_
t 1
T 1
dy
(1 y )
t 1 (1 y )
T
Bond Volatility: Interest Rate Risk
tCt
T Par Val

EC3333 Financial Economics I
Tutorial 6, Topic 5
Q1: A coupon bond that pays interest semi-annually has a par value of $1; 000, matures
in 2 years, and has a yield to maturity of 6%. What is the intrinsic value of the bond
today if the coupon rate is 8%?

EC3333 Financial Economics I
Topic 07
Q1: A bond is called a par value bond if its price equals its face value. Prove that the
YTM of a par value bond is its coupon rate. Suppose the maturity of the bond is n years,
the coupon rate is C and the par value

EC3333 Financial Economics I
Topic 6
Q1: Please show that for a Par value bond, we must have the current yield = the coupon
rate = yield to maturity. (3 marks)
P
C
1
A: For par value bond, it must be true that 1 = nt=1 (1+y)
t + (1+y)n . Let S =
1 n
1 n
T

Lecture Notes 05
Bond Prices and Yields
1
Bond Characteristics
A bond is a security issued in connection with a
borrowing arrangement
The borrower issues (sells) a bond to the lender
for some amount of cash
The arrangement obligates the issuer to make
spe

Lecture Notes No. 2
Optimal Risky Portfolios
Two-Security Portfolio: Return
rp
rP
wD
Bond Weight
rD
Bond Return
wE
Equity Weight
rE
Equity Return
w r
D
D
wE r E
Portfolio Return
E (rp ) wD E (rD ) wE E (rE )
Two-Security Portfolio: Risk
w w 2wD wE Cov(r

Lecture 1
The Investment Environment
Textbook, Chapter 1
1-2
Introduction
What is Finance all about?
deciding
g among
g investment alternatives
One principal theme:
Valuation
V l ti
Law of One Price
Relative value
1-3
Real Assets Versus Financial As

Lecture 2
Risk and Return
Textbook, Chapter 6
6-2
Rate of Return
Single-Period: Holding Period Return
( P1 P0 ) + D1
R=
P0
where P0 = beginning price of asset
P = ending price of asset
1
D1 = income during the period
6-3
Rate of Return
Holding-Period Re

Lecture 4
Portfolio Returns and Risk
Textbook, Chapter 7
2
Variance and Covariance
Mutual dependence between two or more
random variables
Let R1 and R2 be two random variables. The
covariance of R1 and R2 is
Cov ( R1 , R2 ) = E ( R1 E ( R1 ) ) ( R2 E (

Lecture 3
Portfolio Returns and Capital
p
Allocation
Textbook,
Textbook Chapter 6
IVESTMENTS | BODIE, KANE, MARCUS
2
Definitions
An asset is an investment instrument that
g
can be bought and sold
A portfolio is a collection of assets
it lf an asset
its

W k5
Week
Equilibrium in Capital Markets
Readings: Textbook, Chapters 7 and 9
Given: N risky assets with rates of returns
R1 , R2 , , RN
with expected values
E ( R1 ) = 1 , E ( R2 ) = 2 , , E ( RN ) = N
and variances and covariances
Var ( R1 ) = 11 , Var

Week 6
Capital Asset Pricing Model
Readings: Textbook Chapter 9
Textbook,
(pages 308-329)
It is the equilibrium model that underlies all
modern financial theory
Derived using mean-variance optimizaton
with simplified assumptions
H. Markowitz, Sharpe, Lint

Week
W k8
Bond Prices and Yields
Readings: Textbook, Chapter 14
Bonds are debt instruments
B
Borrower (I
(Issuer) and C di
) d Creditor (h ld )
(holder)
a contract between the issuer and the bondholder (called
the indenture) that specifies
par (or face

Semester 2, 2012-13
EC3333 Financial Economics I
B. T. Lim
The Capital Asset Pricing Model
1. The Market Risk Premium
Given the assumptions, we know that every investor will hold a common portfolio of all
the N risky assets in the market (called the One F

Week 12
Futures Swaps and Risk Management
Futures,
Readings: Textbook, Chapters19 and 20
Cost-of-Carry
Cost of Carr Relationship
Net
Carry Cost
F0 = S0 + CC CR
where F0 = Futures price
p
S0 = Spot or Cash price
CC = Carry costs
CR = Carry return
y
Suppo

Week 10
Options
Readings: Textbook, Chapters 17 & 18
Derivative is a security
essentially a contract between two (counter) parties
whose value is dependent upon or derived from one or more
p
p
underlying securities or assets
common underlying assets in