ECON 3U03: Test 2
Instructor: Shintaro Yamaguchi
March 8, 2011
Do not start or read problems starting from the next page until you are told to do so
(or get 10% penalty on this test).
Only university calculator (Casio FX991) is allowed.
There are 4 que

Due on Dec 1, 2015 (in class).
Solutions will be sent out immediately after the assignments deadline. As a result, late
submission of assignments will not be accepted.
1. (20 points) Discuss the various forms of market efficiency. Include in your discussi

CHAPTER9
MARKET EFFICIENCY
1.
Zero. If not, one could use returns from one period to predict returns in later
periods and make abnormal profits.
2.
c.This is a predictable pattern in returns which should not occur if the weak-form
efficient market hypothe

1.
Incomplete answer (e.g. no discussion about tax rate): -2 each
Incorrect definition of fair game: -2
Incorrect explanation about reduction in standard deviation: -3
Calculation error: -1
Error in formula :-2
The numbers used in formula are totally wron

Firm 1
Firm 2
Potential Dividend Paths
Period
One
Event
X
Y
Z
X
0 50
12 50
24 50
Period 2
Y
0 50
12 100
24 150
Potential Dividend Paths
Interest Rate
0
Z
0 100
12 150
24 150
Period 2
Period
One
Event
X
Y
Z
X
0
15
30
Start of Period 1
Start of Period 1
Pre

3FB3 - Fall 2015 - 1 of 10
Commerce 3FB3
Security Analysis
Fall 2015 Course Outline
Finance and Business Economics Area
DeGroote School of Business
McMaster University
COURSE OBJECTIVE
The goal of this course is to introduce the students to fundamental el

Due on Dec 1, 2015 (in class).
Solutions will be sent out immediately after the assignments deadline. As a result, late
submission of assignments will not be accepted.
1. (20 points) Discuss the various forms of market efficiency. Include in your discussi

Security Analysis
COM 3FB3
Index Models and the Arbitrage Pricing Theory
1
Chapter 8: Index Models and the Arbitrage
Pricing Theory
Objective: To discuss the nature and illustrate the use of
arbitrage. To introduce the index model and the APT.
2/18
8.1 Th

Name:_
Student #:_
3FB3
DURATION OF EXAMINATION: 2.5 Hours (8:30 am 11: 00 am)
Oct 20, 2015
THIS EXAMINATION PAPER INCLUDES 13 PAGES. THERE ARE 25 MULTIPLECHOICE QUESTIONS AND 10 WRITTEN QUESTIONS. YOU ARE RESPONSIBLE FOR
ENSURING THAT YOUR COPY OF THE PA

Security Analysis
COM 3FB3
Trading in Securities Markets
Chapter 4: Return and Risk
Objective: To introduce some key concepts and issues that are central to
informed investment decision making.
Determinants of interest rates
Rates of return for different

CHAPTER 21
ACTIVE MANAGEMENT AND PERFORMANCE MEASUREMENT
1. The dollar-weighted average return or IRR for the cash flow given, based on daily
compounding, is .05553 percent or an annual rate of 22.46 percent. (Solved
through spreadsheet by using XIRR func

CHAPTER 18
OPTIONS AND OTHER DERIVATIVES MARKETS:
INTRODUCTION
1. We assume in all cases that the option position is established by buying at the ask
prices.
a. Option price = $3.95; payoff = 14 11 = 3; profit = 3 3.95 = 0.95
b. Option price = $0.52; payo

Security Analysis
COM 3FB3
The Capital Asset Pricing Model
1
Chapter 7: The Capital Asset Pricing Model
Objective: To present the basic version of the model and its
applicability.
Assumptions
Resulting Equilibrium Conditions
The Security Market Line (S

2015/11/24
20.4 Futures Prices
Example
The S&P/TSX 60 index is at 800 now
The Spot-Futures Parity Theorem
An investor who holds $800 in a mutual fund indexed to the
S&P/TSX wishes to hedge her exposure to market risk
With a perfect hedge the futures p

Chapter 7 The Capital Asset Pricing Model (CAPM)
7.1TheCapitalAssetPricingModel
TheCAPMisasetofpredictionsconcerningtheequilibriumexpectedreturnsonriskyassets
Assumptionincludethatitisasimpleworld,investorsarealikewiththeinitialexceptionof
wealthandrisk

2010 OS Financial Trading System
FTS Real Time System Project: Stock Index Futures
Question: How are stock index futures traded?
In a recent Barrons article (September 20, 2010) titled Futures Are the New Options it was
noted that there has been an increa

Due on Oct 13.
Please put your assignment in the drop box in front of Ms. Sieks office (DSB 303)
before 16: 00 pm, Oct 13. The drop box will be cleared by 16: 00 pm, Oct 13, so please
make sure you submit your assignment before that time. Solutions will b

Due on Oct 13.
Please put your assignment in the drop box in front of Ms. Sieks office (DSB 303)
before 16: 00 pm, Oct 13. The drop box will be cleared by 16: 00 pm, Oct 13, so please
make sure you submit your assignment before that time. Solutions will b

CHAPTER 6
OPTIMAL RISKY PORTFOLIOS
QUESTIONS: 11, 20, 21, 23, 24, 25, 26, 27, 28, 29, 30
SOLUTIONS:
1. (a) for sure.
(b) and (d) are firm-specific.
(c) and (e) can be either firm-specific or due to marketwide factors.
2. (a) and (c) enter into the portfol

CHAPTER 7
THE CAPITAL ASSET PRICING MODEL
QUESTIONS: ALL QUESTIONS EXCEPT 21, 22, 23, 24
SOLUTIONS:
1. E(rP) = rf + P[E(rM) rf]
18 = 6 + (14 6)
P = 12/8 = 1.5
2. If the covariance of the security doubles, then so will its beta and its risk premium.
The cu

CHAPTER 5
CAPITAL ALLOCATION TO RISKY ASSETS
QUESTIONS: ALL QUESTIONS EXCEPT 3, 4, 5, 6, 17, 18, 19, 24, 27,
SOLUTIONS:
1. a. The expected cash flow is (.5 $70,000) + (.5 200,000) = $135,000.
With a risk premium of 8 percent over the risk-free rate of 6 p

CHAPTER 4
RETURN AND RISK: ANALYZING THE HISTORICAL RECORD
QUESTIONS: ALL QUESTIONS EXCEPT 7, 8, 12, 14, 15, 16
SOLUTIONS:
1. Your holding period return for the next year on the money market fund depends
on what 30-day interest rates will be each month wh

CHAPTER 3
TRADING ON SECURITIES MARKETS
QUESTIONS: ALL THE QUESTIONS EXCEPT 1, 10, 11, 20
SOLUTIONS:
2. a.
b.
In principle, potential losses are unbounded, growing directly with increases in
the price of Alcan.
If the stop-buy order can be filled at $78,

CHAPTER 2
FINANCIAL MARKETS AND INSTRUMENTS
QUESTIONS: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 14, 20, 24, 25
SOLUTIONS:
1.
Money market securities are called cash equivalents because of their great liquidity.
The prices of money market securities are very